The gold price shows great variations in recent past. There are periods of steady increases, consolidations, rapid declines, corrections and sharp increases. Many peoples explain these price fluctuations differently; and most of them are in fact true. The reason for these much variations and causes of variations is because gold behaves differently in different financial market. Gold is a precious metal showing characters of commodity, currency and stock.

Gold as Commodity: Gold is one of the major metal commodities and the most popular precious metal so far. Like any other commodity like oil, gas or wheat, gold prices can show various with supply and demand. But compared to other commodities the supply and demand changes do not cause any major price swings because mining gold out of the ground is getting costly and increasingly difficult.

Gold as Currency: Gold used to be a currency for buying and selling good. Gold standard was also used to value currencies till the recent past. Gold still shows very high correlation to currencies especially against US dollar and Australian dollar. Traders also tend to invest heavily in inflation and deflation.

Gold as Stock: Gold is considered as a good instrument for portfolio diversification because of its good history of price appreciation. Additionally gold is widely used as hedging tool for uncertainties in stock, bond and futures markets.

This blog is written for Orient Financial Brokers, Dubai. OFB offer spot gold trading in UAE and for traders across middle-east.