Purpose of Gold

Gold has many uses. Traditionally, it acts as a store of value and a way to exchange currency. People see gold as a safe investment, especially when economies are unstable. It also helps protect against inflation and the decline of currency value. Central banks are the biggest buyers of gold. They use gold to back their currencies and, in 2022, acquired 1,136 tonnes worth about $70 billion, the largest increase ever recorded in a single year. Gold prices often move in the opposite direction of the US Dollar and US Treasuries. Factors like political instability, worries about recessions, and interest rates can influence its value. Generally, gold prices increase when interest rates are low and the Dollar is weak. Gold is traded in US Dollars (XAU/USD), which affects how its prices change. Recently, the price of gold in Malaysia rose slightly, from MYR 461.39 to MYR 461.97 per gram. This change was mainly due to international gold prices and the USD/MYR exchange rate. The tola price also increased to MYR 5,388.30, confirming this trend. While these prices serve as standards, local prices can vary due to factors like premiums, the quality of bullion, and supply-demand dynamics. To arrive at these daily prices, the global gold price in US Dollars is converted into Malaysian Ringgit. This conversion strongly relies on the Ringgit’s value against the Dollar. If the Ringgit is strong, imported gold costs less locally. If it’s weak, gold prices rise. This conversion is simple numerically but affects market positioning significantly.

Factors Influencing Gold Prices

Gold plays a versatile role in the market: it serves as both a hedge and a fallback asset when markets become uncertain or volatile. While it isn’t commonly used for everyday transactions now, it remains correlated with economic confidence and purchasing power. Simply put, people and institutions turn to gold during times of inflation or when there’s talk of declining currencies. Central banks continue to show confidence in gold. The 1,136 tonnes added to reserves in 2022 indicates a desire to protect economies from fluctuating currencies and growing global uncertainty. This year saw the largest acquisition increase on record, both in quantity and value—reflecting strategic planning that often influences broader investment trends. Gold’s relationship with the US Dollar and Treasury yields is critical. Typically, when yields rise, often due to rate hikes or future policy expectations, gold prices may drop because holding a non-yielding asset becomes less appealing. However, if rates stabilize or decrease, especially with signs of a recession, gold usually gains strength. It tends to flourish in inflationary times or when central bank policies shift to more neutral or soft positions. The XAU/USD pair is essential. Every movement of the Dollar directly impacts gold pricing. Traders must consider both external monetary influences and local currency conditions when analyzing trends. If the Ringgit weakens while the Dollar softens, domestic gold prices may rise more sharply than what international rates indicate. In terms of future positioning, it’s important to keep an eye on US economic reports—especially unemployment figures, CPI numbers, and any recent comments from the Fed. Increased volatility in Treasury markets can quickly affect gold prices in both directions. We’re also monitoring geopolitical events—not only major conflicts but also any situations that might disrupt trade, economic growth, or capital flows. These events tend to influence commodity prices, with gold being particularly responsive. For the next few weeks, we should pay close attention to implied volatility in options pricing on XAU/USD. The skew can provide clues about underlying pressures. Calendar spreads might also become more relevant if rate cut expectations re-emerge. Notably, interest has shifted toward June and August expirations, which could signal positioning ahead of potential weaknesses in Dollar strength. Liquidity is currently stable, but depth during off-market hours is becoming more unpredictable. Thin trading can result in sharp moves. With this in mind, strategies that rely on upcoming macro events should be tested under higher volatility assumptions. We are also reassessing gold’s correlation with benchmark equity indices. Its recent weakening ties could make it a more reliable risk-off asset instead of merely a macro diversifier right now. In summary, changing interest rate expectations, ongoing reserve management by major players, and subtle currency fluctuations are influencing gold prices. While these factors may not cause immediate big price changes, they evolve gradually, and opportunities can arise when prices misalign—especially in the options market. Create your live VT Markets account and start trading now.

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