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Gold prices have experienced significant volatility due to Russia’s invasion of Ukraine amongst other geopolitical tensions. Europe's escalating energy crisis has weakened the euro, and rising US interest rates have strengthened the dollar, causing daily fluctuations in gold spot prices. Despite these challenges, Bloomberg Intelligence anticipates that central banks will maintain a positive outlook on gold as a reserve asset.
Gold prices are influenced by several factors, with inflation and interest rates being among the most significant and closely connected. Due to gold's limited supply, it often serves as a hedge against inflation. However, despite its reputation as a safe-haven investment, gold is not without risk.
Inflation and Gold
The Bureau of Labor Statistics has reported another decline in the inflation rate, now down to 2.5%. This brings it closer to the Federal Reserve's target of 2%, which strongly suggests that the Fed may begin cutting interest rates during its upcoming meeting later this month. While lower inflation can help decrease costs and reduce borrowing expenses, it also brings potential changes for investors.
In recent years, many investors have turned to gold and other precious metals for their stability during inflationary times. Gold tends to hold or even increase in value during such periods, leading to an 11-year high in investments in the metal last year. However, with inflation cooling significantly, some investors may now question whether gold remains a worthwhile investment.
While inflation and interest rates are key factors influencing investment choices and market sentiment, they aren't the only aspects to consider when assessing gold's future direction.
Despite the prospect of cooling inflation and upcoming Fed rate cuts, the main drivers of gold's attractiveness—such as economic instability, geopolitical uncertainties, and the demand for safe-haven assets—are expected to remain robust.
Correlation Between Treasury Yields and Gold
Gold prices are closely tied to U.S. Treasury real yields, which represent returns adjusted for expected inflation. If investors believe the Federal Reserve will continue raising interest rates aggressively and succeed in reducing inflation, gold becomes less attractive as Treasuries may provide better returns.
Conversely, if the market doubts that inflation will be significantly lowered despite rising interest rates, gold often gains appeal among investors. Many turn to the precious metal for safety when they fear losing real value in otherwise stable assets like cash and U.S. government bonds. These assets generally lose value when inflation expectations increase more rapidly than nominal yields.
As the Fed prepares to lower interest rates, returns on alternative investments like bonds, savings accounts, and certificates of deposit are likely to decrease. Given gold's current high levels, it may offer stronger growth prospects compared to these declining options. Once rates begin to fall, gold could also outperform other low-risk investments like T-bills.
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Traditional Gold Investment Products
Historically, gold serves as a valuable diversifier in multi-asset portfolios, helping to balance risk and return, and mitigating overall losses when other assets like stocks, bonds, and real estate decline. Investors can access gold through physical bullion, stocks, futures, CFDs, or ETFs. While buying physical gold, such as bars or coins, offers direct exposure, it incurs costs for storage and insurance.
Demand for gold jewelry has decreased since 2021, partly due to a stronger dollar making gold more expensive in local currencies. China has also experienced a drop in gold jewelry demand year-on-year up to June 2022.
Investing in physical gold allows for resale flexibility, but there is no assurance of achieving the same market price upon selling, and gold does not generate yield while held.
Trading Gold Online
Investors looking to speculate on gold prices without owning physical gold have several trading options. Gold ETFs are commodity funds that trade like individual stocks through online brokers, providing exposure to gold prices without purchasing the metal itself.
Gold perpetual futures offer another way to engage with the market. These contracts allow traders to benefit from price changes by paying the difference between the entry and exit prices, and they have no expiration date, which means traders can hold positions indefinitely and enjoy higher liquidity than the spot market.
Contracts for Differences (CFDs) are another option, though they are complex and carry high risk due to leverage. Success with these instruments depends on a trader’s ability to analyze market trends and understand price-driving factors.
Futures and CFDs do not require full funding upfront, offering leverage for investors. However, managing futures contracts is necessary to maintain proper exposure, making them suitable for those who prefer a hands-on, strategic approach.
For those seeking an alternative, consider exploring APEX's Perpetual Gold Futures. This contract does not have an expiry date. This can be particularly advantageous for traders looking to hedge against market volatility without the constraints of conventional futures.
APEX Perpetual Gold Futures Contract Specifications
The APEX Perpetual Gold Futures Contract has the following specifications:
The Futures Contract has a minimum price fluctuation of US $0.10/troy ounce.
The last trading day of the contract month is not applicable as there is no maturity date.
APEX Perpetual Gold Futures symbol: AUP1/ AUP10/ AUP100
APEX Trading Hours are as follows (LBMA Gold Price AM Publication Day):
T Session:
06:55hr - 06:59hr (Pre-opening Session)
06:59hr - 07:00hr (Opening Match Session)
07:00hr - 18:00hr (Day Session)
T+1 Session:
20:25hr - 20:29hr (Pre-opening Session)
20:29hr - 20:30hr (Opening Match Session)
20:30hr - 05:00hr (Night Session)
Find out more about Gold Futures here:
5 Things To Know About Gold Futures
3 Factors That Affect Gold Prices
Start Trading with Orient Futures Singapore
Being an Overseas Intermediary of Shanghai International Energy Exchange (INE), Dalian Commodity Exchange (DCE), and Zhengzhou Commodity Exchange (ZCE), when foreign clients participate in internationalised futures contracts in these Chinese markets with us, they have direct access to trading, clearing, and settlement. Our parent company, Shanghai Orient Futures, is the largest broker in terms of aggregated volume across the five regulated exchanges in China.
Orient Futures Singapore also currently holds memberships at the Singapore Exchange (SGX), Asia Pacific Exchange (APEX), and ICE Futures Singapore (ICE SG). Starting August 2023, corporate clients can also gain access to the B3 Exchange through us, opening additional trading avenues.
Expect streamlined processes and an easy-to-use interface designed for minimal latency, accompanied by our team's round-the-clock availability on trading days to provide assistance for all your trading needs.
