Gold has been taking a dive recently, and that's been incredibly concerning to some investors. However, for binary options traders, the increased volatility that we've seen in the price of the precious metal leads to increasing opportunities. Today, we'll talk about why we've seen recent declines in the price of gold, what could happen ahead, and what opportunities binary options traders should be watching out for when trading the commodity.
Why Gold Is Headed Downward?
The recent declines in the price of gold have been relatively simple to understand. Gold is a safe haven investment. Therefore, changes in economic or market sentiment can lead to movements in the price of the commodity. When economic or market conditions appear to be positive or improving, we tend to see declines in the price of the precious metal as safe haven investors sell their holdings. Adversely, when economic or market conditions are negative or appear to be declining, gold heads up in value as investors look to the precious metal as a way to keep their money safe.
Another major factor in the movements of gold's price is the value of the USD. Because gold is priced using the USD, the two assets have a very inverse relationship. When the USD gains in value, gold becomes more expensive around the world thanks to changes in currency exchange rates. This leads to declines in demand and declines in price. Adversely, when the USD falls in value, we see the exact opposite.
So, What's Causing The Current Decline?
The current downward movement in the price of gold is being caused by economic conditions and expectations with regard to the Federal Reserve. Here's what we're seeing…
Global Economic Improvements – While the global economic outlook isn't great at the moment, things are starting to improve. It seems as though the experimental monetary policies being put in place by central banks around the world are indeed having a positive affect on economic conditions. As a result, sentiment with regard to the market is improving and investors are slowly starting to ditch safe haven investments.
Federal Reserve News – The Federal Funds interest rate, set by the Federal Reserve is a big contributing factor when it comes to the value of the USD. Throughout the year, the Fed has been working to increase its rate, but it hasn't been able to. However, recent improvements in jobs growth, home sales, and other economic indicators are leading to expectations of a rate hike just around the corner. This would lead to gains in the value of the USD, and therefor, the story is putting resistance on the price of gold.
What Binary Options Traders Should Be Watching For
At the moment, it looks like gold is likely to continue heading downward. So, binary options traders should be watching for strong put option opportunities. However, as we know, things can change at any time. Moving forward, it's going to be very important to pay close attention to economic developments, specifically in Europe, China, the UK, and the United States. If we start to see declines again, gold could quickly shift directions. Also, keep a close eye on the commodity for call option opportunities heading into September. With the wedding season in India just around the corner, we're likely to see a spike in demand throughout the month, leading to gains here and there.
What Do You Think?
Where do you think gold is headed moving forward? Join the discussion in the comments below!
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