Gold (XAU)

The ultimate safe haven asset. Gold has preserved wealth for millennia and remains the go-to hedge against uncertainty.

2-Minute Beginner Summary

Gold is the original "safe haven" investment. When stocks crash or currencies weaken, investors buy gold. It doesn't pay dividends, but it holds its value over centuries. Central banks hold gold as reserves. Prices rise with inflation fears, geopolitical tensions, and when real interest rates are low or negative.

What Is Gold?

Gold is a precious metal with unique properties: it doesn't corrode, is easily divisible, and has been valued by humans for 5,000+ years. Beyond jewelry, gold is used in electronics and dentistry.

Why XAU Matters

Gold is a portfolio diversifier and inflation hedge. Central banks hold 35,000+ tonnes. It's the ultimate "store of value" when paper currencies are questioned.

What Moves the Price?

Top 6 drivers affecting Gold prices:

Real Interest Rates

Gold's biggest driver. When real rates (nominal - inflation) are low or negative, gold shines.

U.S. Dollar

Gold is priced in dollars. A weaker dollar makes gold cheaper for foreign buyers.

Central Bank Buying

Central banks (especially China, Russia, Turkey) have been major buyers since 2010.

Geopolitical Risk

Wars, sanctions, and political instability drive safe-haven flows into gold.

Inflation Expectations

Gold is seen as an inflation hedge. Rising inflation expectations support prices.

ETF Flows

GLD and other ETFs hold physical gold. Large inflows/outflows move prices.

Market Structure

Spot vs Futures

London is the global spot market (LBMA). COMEX futures in New York are the most liquid derivatives. The two are closely arbitraged.

Contango & Backwardation

Gold typically trades in mild contango reflecting storage costs. Steep backwardation is rare and signals extreme physical demand.

Key Exchanges: COMEX (CME Group), LBMA (London), Shanghai Gold Exchange

Contract Size: 100 troy ounces per contract

Seasonality

Gold has mild seasonality tied to jewelry demand.

Peak Months: August, September, January, February

Low Months: March, June, July

Indian wedding season (Oct-Dec) and Chinese New Year (Jan-Feb) boost jewelry demand. Summer is typically weaker.

Macro Sensitivity

Gold is negatively correlated with the dollar and real interest rates. It often rises when growth slows (recession hedge) and inflation rises. It's a "risk-off" asset.

USD Sensitivity: negative
Inflation Sensitivity: positive
Growth Sensitivity: negative
Rates Sensitivity: negative

Stock & ETF Exposure Map

Related Stocks

Related ETFs

Key Calendar & Reports

Fed Interest Rate Decision (8x per year)

Source: Federal Reserve. Rate decisions and forward guidance move gold

World Gold Council Report (Quarterly)

Source: World Gold Council. Global gold demand and supply data

CFTC Commitment of Traders (Weekly (Friday))

Source: CFTC. Speculative positioning in gold futures

Central Bank Gold Reserves (Monthly)

Source: IMF/WGC. Official sector gold holdings

How to Trade Gold

ETFs like GLD and IAU are the simplest access. Physical gold (coins, bars) appeals to some. Mining stocks (GDX) offer leverage to gold prices.

Frequently Asked Questions

What drives gold prices in the current macro environment?

Gold prices are primarily driven by real interest rates (nominal rates minus inflation), U.S. dollar strength, and geopolitical risk. When the Fed maintains higher rates but inflation expectations rise, real rates compress and gold benefits. Central bank de-dollarization, particularly by China, Russia, and emerging markets, has added structural demand since 2022.

How should institutional investors allocate to gold?

Most institutional frameworks suggest 5-10% allocation for portfolio diversification. Gold's negative correlation to equities during stress events and positive correlation to inflation makes it valuable for risk-adjusted returns. Access via physical ETFs (GLD, IAU) offers liquidity; mining equities (GDX) provide leverage but add operational risk.

What is the outlook for central bank gold demand?

Central banks added 1,100+ tonnes in 2022-2023, the highest since 1967. Drivers include sanctions risk (frozen Russian assets), de-dollarization strategies, and reserve diversification. China's PBOC has been consistently adding for 18+ months. This structural bid is expected to persist through 2025+.

How does gold perform in different economic scenarios?

Gold outperforms in stagflation (high inflation + slow growth) and crisis periods. It typically lags in strong growth with rising real rates. Historical data shows gold returns 15%+ annually during recessions versus 3% during expansions. The 2020 COVID crisis saw gold hit all-time highs as real rates turned negative.

What are the key supply constraints for gold?

Annual mine production (~3,100 tonnes) has plateaued as ore grades decline globally. New discoveries are rare and take 10-20 years to develop. Recycled gold adds ~1,200 tonnes yearly. With demand from central banks, ETFs, and jewelry (~2,100 tonnes), the supply-demand balance remains tight.

How do I evaluate gold mining stocks versus physical gold?

Mining stocks offer 2-3x leverage to gold prices but add company-specific risks (operations, jurisdictions, hedging). Look for All-In Sustaining Costs (AISC) below $1,200/oz, production growth, and tier-1 jurisdiction exposure. Royalty companies (FNV, WPM) offer gold exposure with lower operational risk.

What is the relationship between gold and Treasury yields?

Gold is inversely correlated with real Treasury yields (TIPS). When 10-year real yields fall below 0%, gold historically rallies. The relationship weakened in 2022-2023 as central bank buying offset ETF outflows driven by rising rates. Watch real yields for tactical timing.

What geopolitical scenarios could drive gold significantly higher?

Escalation in Middle East conflicts, Taiwan tensions, or further Western sanctions could trigger safe-haven flows. A BRICS reserve currency challenge to the dollar would be structurally bullish. Currency crises in major economies (Japan, UK) also drive gold demand as a monetary hedge.

Glossary

Troy Ounce: The standard weight for precious metals: 31.1 grams, heavier than a regular ounce.
LBMA: London Bullion Market Association - sets the London gold price fix twice daily.
Karat: Measure of gold purity. 24 karat = pure gold. 18 karat = 75% gold.
Bullion: Gold in bar or coin form valued by weight, not numismatic value.
Spread: Difference between buy (ask) and sell (bid) prices for physical gold.
AISC: All-In Sustaining Cost - total production cost per ounce for miners.
ETF Holdings: Total gold held by exchange-traded funds, a measure of investment demand.
Safe Haven: An asset that holds or gains value during market stress.
Contango: When futures prices exceed spot, reflecting storage costs.
London Fix: The twice-daily benchmark gold price set by LBMA participants.