Gold Correlation: How to Protect Your Trading Portfolio from Risk?

Gold is rightfully considered a safe haven asset in financial markets, attracting particular attention during times of crisis and market turmoil.

However, knowing the principles of gold's correlation with other assets, you can reduce the risk levels of your portfolio at any time.

In this article, we'll explore what gold trading is and what features you need to know to make money on the precious metal, rather than lose it.

The dynamic broker NPBFX , whose reliability has been proven over time, serves as the information partner for this material.

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

Without understanding what this term means, trying to master the market is pointless. Price correlation in Forex is a statistical measure of the relationship between the price of an asset and other variables, an indicator of their synchronicity. This variable can be the price of another commodity or other events/conditions that influence price movement.

Let's look at a simple example: after the price of oil rises, the price of all petroleum derivatives, including gasoline, begins to rise. Consequently, the prices of vehicles that use gasoline as fuel begin to rise, and so on. This demonstrates the correlation between the prices of all these goods.

Correlation can be reversed – for example, when asset prices still move in sync, but in different directions, that is, when one pair rises, the other falls.

What determines the price of gold in financial markets?

Overall, the price of gold is linked to a wide range of factors. However, the following are among those that most frequently attract traders' attention:

• Inflation . Due to its status as a safe haven asset not only in Forex but also in financial markets in general, gold often rises in price during periods of rising inflation.
• Market turmoil or geopolitical tensions. For the same reason, and because of its status during periods of global economic instability, gold is in demand. Primarily because investors are looking for reliable and safe assets.
• The overall wealth of the global population. It's no surprise that demand for jewelry can influence the price of gold (as a precious metal) at any given time.
• Monetary policy of leading global regulators. Central bank decisions can impact the price of precious metals, especially when a regulator decides on a major rate hike or cut or changes monetary policy.
• Difficulty in Mining. Over the past decade, the gold mining sector has faced real challenges, ranging from rising production costs to depleting metal reserves.

How does gold relate to other markets?

Let's look at specifics and concrete examples. Analyst Thomas Andrieu conducted a study examining gold's performance over five years—from 2018 to 2023. This study revealed a long-term correlation matrix for the selected period. For convenience, asset prices were presented in US dollars.

The study found that gold currently has a long-term correlation with Bitcoin, at +62%. The correlation with the dollar is negative, at -11%, while the S&P 500 index demonstrates a correlation close to "symmetrical movement," at +80%.

The medium-term study—January 2022–July 2023—showed a lower correlation with all selected markets. With Bitcoin, it was +49%, with the dollar, it was +29% positive, and with the S&P 500, it was +51%. This confirms that, over the medium term, the gold price is slightly more independent of other markets, but slightly more susceptible to the influence of the US dollar.

Finally, there's the short-term correlation, which was determined over a six-month period. Gold's correlation with the leading cryptocurrency was +67%, with the US dollar +13%, and with the S&P 500 +30%. These figures demonstrate how sensitive the gold price is to a decline in Bitcoin.

In conclusion, we can confidently note that gold prices are closely linked primarily to economic activity. Correlations with other instruments depend on market urgency and other factors.

Portfolio diversification with gold

A popular strategy for portfolio diversification is gold, where the primary objective is sound risk management and trading portfolio optimization. Including gold in your portfolio offers a good balance between the investment security provided by a safe-haven asset and the potential growth of other assets. Gold trading is especially important during periods of economic stress and crisis.

Is there a best time to trade gold ? Gold is inherently considered a long-term asset and a long-term investment. If you're more interested in daily trading, the best time is between 11:00 AM Moscow time and approximately 3:00 PM Moscow time. This is because the gold price is fixed on the London exchange.

Where can I get free gold analytics? Broker NPBFX has developed a dedicated Analytical Portal. Access to the online platform is completely free – every registered client can access it through their Personal Account. Here you can find detailed analytics in the form of chart overviews, detailed comments, and recommendations, as well as accurate trading signals for gold and other instruments.

Why NPBFX the best broker for trading?

• Deposit and payout insurance up to €20,000 per client.
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• Tight spreads – from 0 pips, minimum deposit – from $10, no commissions.
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• There are no restrictions on the use of trading strategies and methods.
• Ability to trade 130+ assets across five markets.
• We have a policy of complete transparency; you can review all documentation in detail before registering in a special section of the website.
• Stable access to the terminal and services under any market conditions – no restrictions for Russian traders.

Make trading even more profitable with NPBFX's "Gifts for Trades"

Diversification is undoubtedly a key element for profitable Forex trading. For even greater benefits, you can take advantage of NPBFX's "Gifts for Trades" offer. Traders simply need to continue trading at their usual pace: the larger the trade volume, the more valuable the rewards you can receive!

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Protect your trading portfolio with proven precious metals, trade XAU/USD on flexible terms, and earn rewards for your trades from the trusted broker NPBFX!