Gold vs US dollar: which one should you buy?
Volatility and fear often cause traders to flock to risk-off assets such as gold and US dollar. Learn what differentiates the two and which are bought historically depending on the global environment.
Key points
- Gold and USD remain popular flight-to-quality assets along with US bonds and JPY
- Since 2020, gold prices have hit $2,000 thrice - on the pandemic and regional bank closures
- Historically, USD has performed well on relative strength - with an outperforming economy and higher interest rates
What is the relationship between gold and US dollar?
Historically, gold has moved inversely to USD more often than not. However, both assets are seen as flight-to-quality assets that traders look to during times of uncertainty. When volatility in the stock market picks up, or geopolitical events spark fear globally, investors and traders tend to move money into assets they deem safer or less risky. USD, JPY, US bonds and gold are all seen as risk-off assets because of perceived longevity or stability in the underlying country or value.
Different risk-off evironments historically cause investors to move towards either gold or USD. Gold has seen increased demand during times of fear caused by unforeseen events, such as the COVID pandemic in 2020 and the regional US bank failures in the past two years; all three instances resulted in gold prices hit $2,000.
Traders often look to US dollar during times of global downturns or geopolitical tensions. Different from gold, USD gains demand due to relative strength. The dollar tends to appreciate when economic conditions worsen overseas because of the US' economic stability and/or higher interest rates relative to other nations.
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like IG. USD pairs can be found in IG's platform under the 'USD Pairs' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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