What moves the gold price

Gold is priced in US dollars on the international market. When the dollar strengthens, gold becomes more expensive in every other currency, which dampens international demand and tends to push the price down. When the dollar weakens, the opposite happens. The inverse correlation between gold and the dollar index (DXY) is one of the most consistent relationships in macro trading. It is not perfect; gold can rise even when the dollar is rising if other factors are strong enough. But the relationship is the first lens through which most gold traders read a chart.

Gold pays no interest. When real interest rates (nominal rates minus inflation) are high, holding gold has a high opportunity cost: investors could hold government bonds and earn a real return instead.

When real rates are low or negative, the opportunity cost disappears and gold becomes relatively more attractive.

This is why gold tends to rally when central banks cut rates and tends to weaken when rates rise faster than inflation. Watch US 10-year Treasury Inflation-Protected Securities (TIPS) yields as a proxy for real rates.

Gold has a long-standing reputation as an inflation hedge. The reasoning is that as fiat currencies lose purchasing power over time, the value of a finite asset like gold is preserved. In practice the relationship is noisy. Gold sometimes rises during inflationary periods and sometimes does not. What matters more than headline inflation is whether central banks are perceived to be falling behind it. When markets believe inflation will be allowed to run, gold typically rallies. When markets believe central banks will act decisively, the gold response is muted.

Gold has acted as a store of value during periods of crisis for thousands of years. Modern markets reflect this. When equity markets sell off sharply, when geopolitical tensions escalate, when banking systems come under stress, gold typically attracts inflows from investors seeking a non-correlated asset. These flows can produce sharp, fast moves that have little to do with the underlying macro picture. Gold's role as a hedge against systemic risk is the most unpredictable of its four main drivers, and the most powerful in extreme conditions.

Two more demand sources are worth mentioning. Industrial demand for gold (electronics, dentistry, jewellery) is relatively stable and contributes a steady base to the market. Central bank demand can be a more significant variable. When central banks, particularly in emerging markets, increase their gold reserves, the price often rises. The IMF publishes monthly data on official sector gold holdings.