One of the most important dynamics of the gold market is that it is cyclical, meaning that it tends to follow cycles. This is true for most commodities and, in fact, for the economy as a whole. Of course, gold is also used as a hedge in times of geopolitical uncertainty, since the asset provides more stable value when crises, such as war, are looming. These geopolitical tensions also increase pressure on financial markets, but they help boost the demand and value of gold.
Since gold has been considered a valuable asset for thousands of years, it has always been wanted and in demand, but it is in the most recent history that the market has grown to become what it is today, and what it is today is a fairly mature and stable market. Now that you understand that gold is a store of value, you may be wondering how the price of gold reacts to various economic conditions. According to Fitch Solutions, current fears of recession, high geopolitical tensions stemming from the war between Russia and Ukraine, and the persistent risks of the pandemic itself are expected to cause gold prices to exceed their pre-COVID-19 level. Interestingly, there are cases that can affect the price of gold in regional areas that are affected by factors such as weather.
Rising interest rates are generally negative for the price of gold, unless inflation rises even faster. Gold is now retreating from its highs, but it could be forming a bullish flag pattern that could cause prices to rise much higher. Your personal goals and your research will determine if gold is the right investment for you. Gold and inflation also work together, since inflation is one way in which money can devalue quickly, and when this happens, people prefer to keep their money in something that increases in value rather than in something that increases in value, such as gold.
Unlike strict graphic technicians, when evaluating the gold market I also include a broader perspective, for example, taking into account monetary dynamics and macroeconomic fundamentals. When real rates are high, owning gold is less attractive (compared to assets that generate returns, such as bonds). In addition to this expected “turn”, there are other unavoidable realities that should presage an increase in gold prices. Because gold maintains its value, you can compensate for the loss of purchasing power of your dollars by investing in gold.
For example, India consumes between 800 and 850 tons of gold annually and rural India accounts for 60 percent of the country's gold consumption.