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Gold major use is as a reserve although also used for production of materials. An additional role as serving as purchasing power is yet another role gold takes on.
The fact that markets are in different time zones, enables transactions for 24 hours. The main currencies used in transactions are the dollar and euro. At a time when sterling was the dominant currency, but not now.
In the Forex market, gold is neutral, or in other words not tied to any particular country, so that increases in the price influence operations in several currencies. Gold prices are an important driver of forex market.
Since being a reserve currency the price is closely related to other alternative investments such as currencies, equities, bonds or even oil. Another great aspect investors really like about gold is that during periods of low liquidity or even monetary or political unrest is that the price of gold tends to actually rise in value.
The real price of gold adjusted today for inflation is much lower than it was in the 1980’s. Although the equity markets have been highly unstable in recent years gold has been rising the whole time regardless of bull or bear equity moves.
The trend of gold has been up for the last six years has gold has risen from $330 to over $1,150 an ounce as recently as December 2009.
In the currency market, some investors also buy and sell gold for speculative reasons trying to make profits with small price fluctuations. However, the price of gold is very difficult to predict, since their use is mostly as a reserve of purchasing power, and therefore is subject to many monetary and psychological factors.
Investing with a short time horizon leaves open the possibilities for very large account gains however at the same it you have to be aware of your risks and be prepared.
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