Gold correlation or how to protect your trading portfolio from risks?

Gold is rightfully considered a safe-haven asset for financial markets, attracting special attention in times of crisis and market unrest.

However, knowing the principles of correlations between gold and other assets, you can reduce the risk levels of your portfolio at any time.

In this article we will understand what gold trading is and what features you need to know in order to make money on the precious metal and not lose it.

The information partner of the material is the dynamic broker NPBFX , whose reliability has been tested by time.

Let's start with the basics: what is correlation?

Without understanding what this term means, trying to master the workings of the market is pointless. Forex price correlation can be called a statistical measure of the relationship between the price of an asset and other variables, an indicator of their synchronicity. The variable can be either the price of another product or other events/conditions that affect price movement.

Let's look at a simple example: after the price of oil has risen, the price of any oil derivatives, including gasoline, begins to rise. In this regard, prices for vehicles using gasoline as fuel begin to rise, and so on. This demonstrates the correlation between the price of all these goods.

The correlation can be reversed - for example, when asset prices still move synchronously, but in different directions, that is, when one pair rises, the second falls.

What determines the price of gold in financial markets?

In general, the price of gold is associated with a large number of factors. However, the ones that most often attract the attention of traders are the following:

• Inflation . Due to the status of a safe asset and a “safe haven” not only for Forex, but also for financial markets in general, when inflation rises, gold often increases in price.
• Market unrest or geopolitical tensions. For the same reason and because of its status in moments of global economic instability, gold is in demand. First of all, because investors are looking for reliable and safe assets for themselves.
• Overall well-being of the world's population. Not surprisingly, the demand for jewelry can influence how much gold (as a precious metal) is worth at a given time.
• Monetary policy of the world's leading regulators. Decisions of central banks can have an impact on the price of the precious metal - this is especially noticeable at moments when the regulator decides on a major increase or decrease in the rate, or a change in monetary policy.
• Difficult to obtain. Over the past decade, the gold mining sector has faced real challenges, from rising production costs to dwindling reserves of the metal.

How is gold related to other markets?

Let's turn to specifics and precise examples. Analyst Thomas Andrieu conducted a study examining the behavior of gold over five years, from 2018 to 2023. Based on the results of this study, a long-term correlation matrix was identified for the selected period. At the same time, asset prices were considered in US dollars for convenience.

The study showed that gold currently has a long-term correlation with Bitcoin – this figure is +62%. The correlation with the dollar is negative and amounts to -11%, but the S&P 500 index shows a correlation close to “symmetrical movement” - +80%.

The mid-term study - January'22-July'23 - showed a lower correlation with all selected markets. With Bitcoin it was at the level of +49%, with the dollar it went in a positive direction +29%, and with the S&P 500 index +51%. This confirms the fact that in the medium term the price of gold is slightly more independent from other markets, but slightly more susceptible to the influence of the US dollar.

And finally, the short-term correlation, which was detected using a period of six months. The correlation of gold with the main cryptocurrency was +67%, with the American currency +13%, with the S&p 500 index +30%. Such indicators indicate how sensitive the price of gold is to a decline in the price of Bitcoin.

To summarize, we can confidently note that the price of gold is closely related to economic activity to a large extent. Correlation with other instruments depends on market urgency and other aspects.

Portfolio diversification with gold

A popular strategy is to diversify a portfolio with gold, where the main task is competent risk management and optimization of the trading portfolio. The inclusion of gold in the list of instruments strikes a good balance between the investment security provided by a safe-haven asset and the potential growth of other assets. You should especially not neglect gold trading during periods of economic tension and crisis.

Is there a best time to trade gold ? At its core, gold is considered more of a long-term asset and a long-term investment. If you are more interested in daily trading, then the best time would be the interval after 11 pm Moscow time and until approximately 15:00 Moscow time. The reason for this choice is the fixation of the price of gold on the London Stock Exchange.

Where can I get gold analytics for free? Broker NPBFX has developed a special Analytical portal. Access to the online platform is absolutely free - a portal opens to every registered client of the company from the Personal Account. Here you can find both detailed analytics in the form of reviews with charts and detailed comments and recommendations, as well as accurate trading signals for gold and other instruments.

Why NPBFX the best broker for trading?

• Deposit and payment insurance up to 20,000 euros per client.
• Banking experience and high level of security.
• Working technology – STP/NDD and A-book.
• Guaranteed entry of transactions to the interbank market.
• The largest liquidity aggregators.
• Tight spreads – from 0 points, minimum deposit – from $10, no commissions.
• Leverage up to 1:1000.
• Execution at a speed of 300-600 ms.
• There are no restrictions on the use of trading strategies and methods.
• Possibility of trading 130+ assets in five markets.
• Full transparency policy; you can familiarize yourself with all the documentation in detail even before registering in a special section of the site.
• Stable access to the terminal and services under any market conditions - there are no restrictions for Russian traders.

Make trading even more profitable with the NPBFX “Gifts for Transactions”

Diversification is definitely an important point for profitable Forex trading. To get even greater benefits, you can take advantage of the offer from the NPBFX broker - “Gifts for transactions”. The trader just needs to continue trading at the usual pace: the larger the volume of transactions is closed, the more valuable prizes you can get!

The prize fund of the program ranges from $100 to a real account to Apple gadgets and premium cars! You can participate in the program an unlimited number of times; after receiving one gift, you just need to register in the program again to accumulate trading volume for a new gift. Registration of an account in the program is available in your Personal Account.

Protect your trading portfolio with a trusted precious metal, trade XAU/USD on flexible terms and receive gifts for trades from a reliable broker NPBFX!