Gold is considered to be the world’s “safe haven” asset, it may also be a good indicator of the world’s economic situation and confidence in the financial markets
The price of gold is quoted in US dollars per troy ounce, and each ounce represents 31,1 g. of this precious metal.
Gold is one of the most popular commodities traded around the globe. It is treated as the safest asset for an economy, and as such attracts investors in times of economic uncertainty, recession, wars and other crisis situations. This comes also from historical reasons when gold was the most precious metal being used for the settlement of trade transactions (eg. gold coins).
Gold was also used later as collateral for central banks to issue banknotes. During the gold standard period, banks were obliged to possess gold in the same amount as money issued to the economy. Even until not long ago, the Swiss central bank had to possess 40% of the value of money in gold – being therefore treated as one of the safest currencies in the world.
The price of gold is affected by the dynamics of mine production and changes in central bank reserves. Gold is often treated as a reserve asset, both by central banks and private investors, and as a result protects against the results of inflation. The interest of investors in gold rises in times of a negative outlook in the global economy, or political unrest. Major consumers of gold include India and China, with the economical situation in both countries having some impact on the prices in the long term.
Rule of thumb
Periodically, a negative correlation between gold prices and the US dollar may be observable. In such a case, a weak dollar increases demand for gold and strengthening of the US currency may lead to a gold price decrease