Forex vs Gold: Why More Traders are Picking Precious Metals

Over the last several months, the financial markets have seen a notable shift in trader behavior. Many traders are turning their attention away from traditional forex pairs and opting for precious metals, specifically gold. The reason? Throughout history, certain global events, like the upcoming US elections, tended to create market volatility. During times like these, traders turn to assets traditionally considered “safe havens.”

To ensure that their traders benefit from this trend, Exness has once again led the way, reducing spreads on gold CFD by 20%*. This strategic decision aligns with Exness’ commitment to always provide the best trading conditions, even during times of volatility.

Market Volatility Triggers

Market volatility is a leading driver behind gold’s popularity as uncertainty around geopolitical tensions takes hold. Couple this with the ongoing concerns about high inflation eroding purchasing power, and it becomes easier to understand why traders look toward gold.

Changes in monetary policy also sway the forex market and gold prices. When central banks decide to raise or lower interest rates, they impact how currencies are valued and influence economic growth. During such times, many traders perceive gold, as opposed to stock or currencies, as a more effective way to hedge against market risks.

Exness understands these market dynamics and uses its technological edge to keep spreads as tight as possible, something other brokers struggle to achieve.

The Impact of Economic Events and Monetary Policy on Gold

When the Federal Reserve (the Fed) opts for hawkish policies that boost the US dollar, it can lead to lower gold prices. (This is because gold is primarily priced in USD, meaning decisions by the Fed influence the price of gold.) A perfect example was the 2022-2023 rate hike cycle, where the Fed increased rates sharply. This move, from near-zero to over 5%, put notable pressure on gold’s price.

The flip side of this phenomenon could be seen in Q3 of 2024. The Fed indicated it would cut interest rates because inflation had dropped, a decision that weakened the US dollar. Dovish policies like this often boost the demand for gold because the weaker dollar makes gold more affordable for traders using other currencies.

What Else Influences Gold?

However, the US dollar is not the only factor influencing gold prices. Market demand for physical gold, whether for jewelry or industrial use, also plays a significant role in gold prices, with key players being China and India. Aside from those influences, the fundamentals of supply and demand have always been at play in the gold industry; this includes disruptions in gold mining or shifts in central bank reserves.

So far, this article has focused on long-term trends, but what about gold’s spot price? The spot price of gold is also sensitive to specific events and data releases, such as inflation reports, speeches by central bank officials, economic growth indicators, etc. These can trigger price swings in currency pairs, leading traders to seek gold as an alternative.

Another appealing factor of gold is its liquidity. The strong demand for gold-related assets allows traders to enter and exit positions more fluidly. Gold’s ability to react quickly to economic events further adds to its liquidity. Essentially, the quicker an asset can change hands, the more liquid it becomes.

A final advantage of gold is that it’s a store of value. During market turbulence, gold can be sold for cash, decreasing in price as more positions become liquidated. A perfect example occurred in 2008 when the Lehman Brothers Bank collapsed. Gold prices sharply declined as investors flocked to cash, liquidating their non-cash investments.

Gold CFD Traders and Exness

How gold reacts to these events offers traders an ideal opportunity to showcase their skills and capitalize on the market’s ever-changing tides. However, there is more to gold CFD trading than just understanding these market forces; there are trading costs that can erode profits.

This is where the Exness value proposition proves its worth. Exness has become the broker of choice for many traders because it seeks to maximize traders’ profits by fusing technology-driven solutions with a customer-centric business model.

Tighter spreads** mean lower transaction costs: Exness’ smaller spreads decrease the difference between gold’s buying and selling prices, lowering the cost to enter and exit trades. Tighter spreads yield significant savings for active traders and those using scalping strategies.

Higher trading power: With lower costs, traders can seize opportunities even with slight price moves because they don’t need a significant price change to cover the spread. For larger trades, a smaller spread can lead to considerable savings on each trade.

More and more traders are discovering the benefits of trading gold CFD with tighter spreads at Exness. This is especially true for those who don’t want to overpay their broker.

Gold CFD trading has its challenges, but its surging popularity shows just how valuable it can be for many trading portfolios. Like any financial instrument, success in gold CFD trading means being smart about risk management. For seasoned traders looking to capitalize on any advantage, you want a broker as strong as you are, and trading gold CFD with Exness opens up a new world of opportunities.

* Best spreads refers to average or max spreads offered by Exness, excluding agents’ commission for XAUUSD for the first two seconds after high-impact news, from January to May 2024, compared with five other large brokers.

** Spreads may fluctuate and widen due to factors including market volatility, news releases, economic events, when markets open or close, and the type of instruments being traded.