Intermarket Analysis

Commodity, stock, currency and bond markets are closely interconnected. Understanding their interactions allows traders to develop effective trading strategies. Together with technical buy and sell signals, this information greatly enhances the accuracy of the analysis. When one of the markets begins to show leading signs, you can better customize your analysis.

Fundamentals of intermarket analysis

Often reversals are preceded by divergences. For example, if the dollar strengthens, we can expect commodity prices to decline. If this does not happen immediately, it is a sign of divergence and commodity prices are likely to start falling soon.

Another example: declining bond prices when stocks are rising. While this trend may continue for a while, in an inflationary environment, stocks will eventually follow bonds. To confirm trends, we can assume that existing relationships will continue: if commodity prices rise and bonds fall, this movement will continue. Similarly, the fall in stocks is likely to continue while bonds are falling and for some time after they stabilize.

Global Divergences

By utilizing the correlations between global markets, it is possible to extend the analysis by confirming the conclusions with other markets. It is ideal when global markets confirm what is happening in the local market. For example, if the U.S. stock market is rising and overcoming resistance, the trend is considered strong if other global markets show similar dynamics. Markets with strong correlations, such as those in the Eurozone, Canada or China, should be watched.

In 2008, the synchronized decline in global markets confirmed the strength of the downtrend. Although there may be time lags between the movements of different markets, strong trends should appear synchronized. If the other markets are stable, it is unlikely that U.S. markets will experience a significant decline without confirmation from other global markets.

Assets that reflect cross-market correlations

Having received signals from various markets that a new trend is ready, individual stocks can be used to pinpoint the start of the trend. For example, stocks that are highly correlated with the price of oil and financial sector stocks that are sensitive to interest rates.

These stocks often outperform their respective futures markets, allowing you to predict their movements. The upward movement of commodity stocks confirms the market’s readiness for a bullish trend. For example, in 2008, oil stocks peaked and retreated ahead of oil prices, which foreshadowed their imminent decline.

Financial and service sectors

The bullish performance of interest rate sensitive stocks points to weakening inflation and rising liabilities, suggesting lower interest rates and a possible rise in equities. The strengthening of financial sector stocks at the end of a market cycle is supported by gains in industrial and technology sector stocks. Service sector stocks often move in sync with bonds, confirming trends in the Treasury market.

Conclusion

When global markets confirm movements in the local market, it confirms the continuation of the current trend. Tracking stocks leading asset classes provides early indications of the beginning of a move. Understanding intermarket relationships helps you select the most promising market to open a trading position based on trends. This approach is effective for medium to long term trades, but requires consideration of events that can disrupt intermarket relationships.

What affects the price of gold: the main factors

Gold is a rare metal that has a high value not only for collectors and jewelry lovers, but also for investors. It occupies a unique and significant place, having historically established itself as one of the most reliable and valuable assets. For centuries, this noble metal has symbolized wealth and stability, and in today’s economy, it continues to play a key role in helping investors preserve capital and protect themselves from inflation, currency fluctuations and economic instability.

In this article, we will explore the importance of gold in an investment portfolio and examine the factors that influence its price. We will also discuss how gold can be used to diversify assets and how it interacts with other investment instruments in a changing global economic environment. Understanding these aspects will help you better understand why gold is often considered a “safe haven” in times of financial storms and how it can contribute to investment stability and growth.

Factors affecting the price of gold

The price of gold, like any financial instrument, depends on supply and demand. Gold is in demand in a variety of industries, from medicine and manufacturing to jewelry and investments. However, its supply is dwindling, as the main deposits are located in inaccessible layers of the earth. Let’s take a closer look at how these factors are reflected in gold quotations.

Demand

The demand for gold is growing year by year. This metal is actively used in industrial processes due to its unique properties – conductivity, corrosion resistance and chemical inertness. It is valued in electronics, dentistry, aerospace and many other fields.

Industrial demand for gold is relatively stable and varies depending on technological innovations and global economic growth, having a noticeable impact on its value only in periods of severe crises.

The jewelry sector has traditionally been the largest consumer of gold. Jewelry is valued for its softness, luster, beauty and durability. In many cultures, gold pieces serve not only as jewelry but also as a form of savings.

Investment demand has the greatest impact on the price of gold as large financial institutions, central banks, foundations and private investors invest in it. Investments in gold are made through bars, coins, metal deposits, core ETFs (exchange traded funds) and shares in gold mining companies. Demand for gold is driven by a variety of factors, including monetary policy of leading countries, changes in exchange rates, geopolitical tensions and global economic trends.

Supply

Modern gold mining is the main source of gold supply. It depends on geologic exploration, the availability of deposits, and innovation and efficiency in the mining industry. While modern technology allows the metal to be mined quickly and in an environmentally friendly manner, the amount of metal in easily accessible deposits is declining, which affects supply.

Existing stockpiles that can be melted down and put back into circulation are often utilized. This is gold held by central banks, as well as private reserves in the form of jewelry and bullion. Central banks of many countries use the metal as part of their foreign exchange reserves, purchases or sales of which can significantly affect the availability and price of the resource.

Other factors affecting the supply of gold:

  • Changes in the global economy.
  • The political situation in mining countries.
  • Technological innovations in mining.
  • Environmental regulations and legislation in the mining industry.

Understanding these factors is important for investors, analysts and market participants to evaluate the current and future gold price.

Additional factors affecting the gold price

The price of gold is shaped by a variety of factors. Attentive investors monitor their dynamics in order to react to changes in value in time. Let’s consider other key factors that can affect the price of gold.

Currency rates

Gold and the forex market are interconnected through gold reserves and monetary policy. Precious metals are traditionally traded in US dollars, so changes in the value of the USD directly affect the price of gold. A stronger USD reduces demand for gold, which pressures gold prices.

Inflation

Rising prices of goods and services are reflected in the price of gold. It is often seen as a hedge against inflation. During periods of reduced purchasing power, investors transfer funds into gold, supporting its price.

Geopolitical factors

Wars, terrorist attacks, international conflicts and sanctions lead to increased demand for gold as a safe haven. These events can also make it more difficult to mine and transport the metal, which contributes to higher prices.

Interest rates

Interest rates, especially in major economies, strongly influence precious metal prices. When interest rates are low, gold becomes a more attractive investment. When they rise, investors may abandon gold in favor of higher yielding assets.

Economic crises

In times of financial crises, investors turn to gold as a reliable means of capital preservation. At such times, demand for gold increases, driving up its price.

How gold strengthens an investment portfolio

Gold is often used to strengthen an investment portfolio for the following reasons:

  • Risk diversification: Gold has a low or negative correlation with other assets, which helps reduce the overall risk of the portfolio.
  • Inflation protection: During periods of rising general price levels and currency depreciation, gold retains its value.
  • Liquidity: Gold is one of the most liquid assets and can be easily sold at market price.

Conclusion

To successfully invest in gold, it is important to consider the many factors that influence its price – political, economic and stock exchange factors. Successful entry points can be determined by a fundamental assessment of the global situation. By including gold in their portfolios, investors can reduce their overall investment risk and improve long-term performance, especially in times of market volatility and economic instability.

If you are ready to start investing in gold, it can be done online with an international broker. Open a trading account and become an investor today.