Gold rises as traders weigh war and Inflation
The gold price soared as traders assessed the ongoing war in Europe, escalating inflation, and a potential US recession.
The precious metal climbed alongside increases in oil and natural gas. The possibility of a European Union (EU) embargo on Russian gas and crude oil has sparked volatility in the commodities market.
Commodity prices have been climbing ever since the start of Russia’s invasion of Ukraine at the end of February 2022.
Today, we look at gold and what’s affecting the price of precious metals.
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Gold price up
That’s adding to already elevated raw material prices, fueling demand for gold as a hedge against accelerating inflation.
Gold rose to a one-month high on April 18 to $,998.10, just shy of the psychological $2000 barrier, reports Bloomberg.
Gold’s advance was halted by a jump in the benchmark 10-year US Treasury yields and further gains in the dollar.
Concerns of soaring inflation and the economic ramifications of the war in Europe have boosted gold’s “safe-haven appeal”.
Traders and investors are also concerned about the potential economic fallout from COVID-led restrictions in China.
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Precious metals on the rise
The US Federal Reserve (Fed) announced earlier in 2022 that will implement up to four rate hikes. A rise of 50 basis points is expected at the Fed’s May and June meetings.
Experts believe gold could face little resistance once it breaches $2000 and if inflation remains high, weakening the dollar, we could expect a record high gold price in 2022.
Similarly, many precious metals are gaining in value; Silver rose to its highest in over a month at $26.21 and Platinum gained 2.2% to $1,011.89, its highest since March 25.
Gold-backed cryptocurrencies
The cryptocurrency market suffered a disastrous crash earlier in 2022. Interestingly, new class crypto is bucking the trend of a wider market paralyzed by war and inflation – gold-backed “stablecoins”.
Digital coins backed by gold are a fledgling class of “stablecoins”, which are tied to the precious metal to avoid volatility. The largest of these coins, Pax Gold (PAXG), has soared by 7.4% in 2022, while another, Tether Gold, is up 8.5%.
One of the main attractions is that, unlike most cryptos, these stablecoins are tied to real-world assets. As such traders can get a better sense of how and when to trade the gold-back tokens.
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Why is the gold price climbing?
Historically, inflation has been used as an indicator for gold trends. The price of gold usually rises in tandem with an increase in the cost of living. Despite the global health crisis, inflation levels in most economies have remained low and stable in 2021. However, inflation rates are anticipated to rise further in 2022, therefore gold prices are likely to rise as well.
Trading gold has long been considered a viable strategy amid market uncertainty.
Historically, during periods of economic crises, gold has proved to be a safe-haven asset. However, its status as a financial hedge against uncertainty was solely put to the test during the COVID-19 pandemic of 2020.
Investors, traders, banks, and private individuals took an active interest in the bullion globally, and as the world economies ground to a halt, gold experienced its biggest market turbulence on its way to record-high valuations.
Now in 2022, we’re seeing a repeat of the interest in gold.
Should you invest in gold today?
To make smart investments in gold, you need to carefully look at the monthly gold graphs that show the rise and fall of the commodity’s value. Take a look at the moment when the average is the lowest and when the price approaches this value again, it is a good moment to make a purchase.
Additionally, the overall economy of the world also has a major impact on the price of gold. Generally, we see that gold prices increase during times of economic crisis and depression. That’s because, during these times, investors want to secure their investments in case other markets also experience a bust. The more negative news there is, the more the investors will withdraw from the market and will then reinvest their money in more stable assets, like gold.
Another indicator of an opportunity to buy gold is the price of the dollar. When the price of the dollar declines in the face of rival currencies, people with foreign currencies will be able to take advantage of gold at the best exchange rates.
As you can see, the best moments to buy gold are many, even during these times. You just need to know enough about the market to recognise them.
Trading gold CFDs
One of the most advantageous methods of benefiting from gold price movements is to trade gold CFDs online. CFDs or Contracts for Difference are financial derivatives that allow investors to speculate on the price fluctuations of an underlying financial asset such as gold without buying it beforehand.
Moreover, CFD gold traders can profit both when prices are rising as well as when they are falling. This is because CFD trading allows traders to open a buy or sell position, which means they can buy when prices are moving up or sell when the prices are dropping in order to generate profits.
Also, CFDs are traded on margin, which means that traders only need a small amount of capital to open a position on the market and enjoy increased returns at the cost of higher risk exposure.
Please note that trading CFDs is considered a high-risk investment, which can result in the loss of your invested capital. Always get in touch with your personal account manager to discuss profit targets and how you can minimize your exposure to downside risk.
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