Gold plays an additional role, which is to serve as a store of purchasing power. It can also be used in productive processes but the bulk of gold demand comes from its use as a reserve.
The major exchange for gold although located in London is traded in us dollars with transactions taking place 24 hours a day over different time zones.
The price of gold is an important driver of the forex market. Known to be neutral as it is not tied to any one country like a currency is the price of gold fluctuates for various independent factors which makes it good for trading along with currencies.
Given its use as a reserve, the price of gold is closely related to the behavior of other investment alternatives, such as currencies, bonds and equities. The gold price tends to rise when in the midst of monetary instability and lower capital markets. Events such as wars and natural disasters also affect the price.
The price of gold has been rising due to the weak dollar and the unstable situation in the equity markets. However, its real price, adjusted for inflation, is much lower today than it was in the early 1980s.
Anyway the trend is upward, as in the past five years the nominal price of gold rose from U.S. $330 an ounce in April 2003 to U.S. $900 in early April 2008.
Gold is bought and sold by many traders all over the world in the currency market largely as a speculative play as traders try t profit from small and large price movements. Since gold is used largely as a reserve the price is subject to many factors which cause the price to fluctuate.
When investing over short time frames you are able to earn large amounts of money however at the same time it can be very risky. You have to weight your investments and risk carefully.
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