Gold has been one
of the most profitable assets of 2020. On December 4, 2020, the spot gold price
in the global market rose 21% from the end of last year to USD1,840 per ounce,
while the domestic gold price rose 22% to THB26,250 per Baht(Thai unit of
measurement). For new investors interested in investing in gold, here are five
things you should know before deciding to invest:
Q: How does US
dollar direction affect gold price?
A: The US dollar often moves in the
opposite direction of the price of gold, because gold contracts are normally
traded (prices are quoted) in US dollars, so a weaker US dollar will attract
investors holding other currencies to invest more in gold contracts.
Q: Why gold is
seen as a safe-haven asset?
A: Gold has many of the
attributes of a safe-haven asset, especially two advantages, namely that gold
is a value-accumulating commodity and that the gold price tends to move in the
opposite direction to risky assets under normal market conditions. Therefore,
investors often diversify their investment portfolios by allocating a weight to
Q: Gold is safe,
but why does the price of gold fluctuate?
A: In addition to its use in the
gems and jewelry industry and the electronics industry, gold is also one of the
preferred assets for investors in diversification of their investment and is a
reserve of many central banks. Therefore, the gold price moves up or down depending
on the market mechanism, the strength of the market participants’ buying and
selling, festival-related factors (e.g. Chinese Lunar New Year and India’s
Diwali Festival), as well as other important factors such as the direction of
the US dollar and concerns about the situation of the COVID-19 outbreak. If you
use statistical methods to calculate the volatility of gold, you will find that
the volatility of gold this year has increased to 19.5%, higher than its
volatility of 11.4% in 2019.
Q: Who are the
big participants in the global gold market?
A: According to data from the
World Gold Council (WGC), excluding the global ETF’s gold holdings of
approximately 3,900 tons, the major gold holders that play a key role in the gold
market are central banks of different countries, which gradually buy gold as reserves;
the US Federal Reserve holds 8,100 tons, Germany holds 3,400 tons, Italy holds
2,500 tons, France holds 2,400 tons, Russia holds 2,300 tons, China holds 1,900
tons, and Thailand holds 154 tons. Therefore, the strength of the buying and
selling of gold by these participants, such as net selling by some central
banks, will have an inevitable effect on the price of gold, which is one of the
factors leading to the decline of the price of gold from its record highs in 3Q2020.
Q: What are the
key factors that will affect future gold price movements that need to be
A: There are several key factors
that will influence the direction of the price of gold over the next 3-6
months. The main negative factor will be signs of the successful development of
the COVID-19 vaccine, while the main positive factor will be pressure on the US
dollar from the Fed’s easing of monetary policy. New investors should monitor
these factors closely.
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