E Is Gold’s Relationship With Key Market Indicators Changing?

Gold perhaps retains its reputation as the perfect store of value, especially during tough economic periods. Historically, the yellow metal has demonstrated its ability to act as a haven when stock markets are bearish. As such, gold prices tend to rally during a recession and fall during bullish markets.

The price of gold has also demonstrated in the past that when interest rates are rising, the prices fall and vice versa. It has also shown that when the USD strengthens, against major currencies, gold prices decline.

However, the yellow metal has exhibited an unpredictable relationship with some of these indicators over the last few years, especially since the time the U.S. federal reserve started hiking rates in December 2015.

When many would have expected the price of gold to fall, at times it responded to the rate hikes positively rather than negatively as demonstrated by that little spike at the end of this 2016 chart by Bloomberg. The price of the yellow metal has also at times trended upwards even during bullish markets.

So, what does this mean for traders?

Ideally, many traders today use automated trading systems like an Expert Advisor or a forex trading simulator installed in various trading platforms such as the MT4 to trade forex or Gold. These systems use complex algorithms that are derived from historical relationships between various currency pairs and commodities to predict what might happen in the foreseeable future.

Since things seem to be changing, these systems might need regular upgrades now that the markets are evolving at alarming levels rendering past correlations unreliable. As such, if you are going to use an Expert Advisor or a forex simulator to trade, then it is paramount that the system is updated to mirror market changes. These changes are becoming difficult to capture because there is too much hype that almost seems to overshadow fundamentals.

So, what are some of the items to consider when trading gold?

According to analysts, the price of gold is now more reliant on the strength of the USD than what the Federal Reserve does with interest rates. Furthermore, trading activity in the gold market has also been affected by the emergence of crypto coins, which seem to be taking the currency markets by storm.