Fundamental analysis is the cornerstone of long-term and impactful trades in the pair XAUUSD. Gold is quite responsive to macroeconomic factors, making it vulnerable to news from around the world. A trader with knowledge of fundamentals enjoys a significant advantage as he knows the direction of the market before entering the trade.
Rates of interest determine the . The interest rate policy of the central banks affects the price of gold. An increase in the interest rate lowers the attractiveness of gold because it is not an income-generating asset. People start investing money in assets that give interest, and therefore, the price of gold falls. The opposite case also happens when there is a decrease in the interest rate.
Another fundamental aspect affecting gold’s price is inflation. With an increasing level of inflation, people lose their purchasing capacity. This leads to investments made in gold by people. As a result, gold’s price rises. The release of any data related to inflation, e.g., CPI, causes rapid fluctuations in gold’s price. Economic uncertainty increases gold’s demand because gold can be considered a store of value. Events such as economic recession, banking crisis, or geopolitical tensions cause a rise in the demand for gold.
The strength of currency, especially the US dollar, is another important factor. Gold is quoted in dollars all around the world. The stronger the US dollar, the higher the cost of gold for other nations, resulting in decreased demand and lower prices. The converse is also true.
Skilled traders are always aware of the economic calendar, central bank speakers, and global events. While knowledge of fundamental factors is not a substitute for technical analysis, it certainly helps put things into perspective.
