Gold vs US Dollar

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Gold vs. the U.S. Dollar

The XAUUSD represents the price of 1 troy ounce of gold in U.S. dollars. In other words, it tells you how many U.S. dollars you would need to buy 1 troy ounce of gold. Over the years, gold has remained an attractive commodity due to its store value, beautiful appearance, and malleability.

Many investors consider gold as a safe haven instrument that hedges their investments against inflation. That is because the metal tends to keep its value during times of recession and global upheaval.

Trading gold in the foreign exchange markets can also be a great way for investors to diversify their portfolio and protect it against investment risk. If you are looking to trade gold against the U.S. dollar it would be beneficial for you to gain a good understanding of some of the factors that affect XAUUSD.

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What Drives the Price of Gold?

Gold is one of the most sought-after assets in the world because of its intrinsic value and usage. The valuable metal is used for jewelry making, manufacturing certain medical and electronic devices while a great quantity of it is also used for investment purposes.

The price of gold can be affected by a set of factors which include the value of the U.S. dollar, inflation, supply and demand, market speculation, investors’ sentiment and more.

Factors Affecting the Price of Gold 

Central Banks

Central Banks across the globe hold fiat currencies and gold as a reserve. Many of them have their national reserves primarily in gold. 

The price of the metal can rise when central banks convert their accumulated fiat currencies into gold to be stored in the reserve.  


Gold is generally seen as hedge against inflation - the general rise in the prices of goods and services. When there is inflation, goods prices rise while the value of the dollar falls. Unlike the fiat currency, as inflation increases, the valuable metal tends to keep its value and could even go up. 

Jewelry and Industrial Demand

The United States, China, and India consume great volumes of jewelry gold while an additional amount of the metal is dedicated to industrial and technological uses such as the manufacturing of medical gadgets and precision electronics. As the demand for electronics and jewelry rises, the price of gold could also go up.

The U.S. Dollar

The value of gold is sometimes inversely related to the value of the U.S dollar as changes in the price of the currency can affect the price of the shiny metal. A strong U.S. dollar usually means that the price of gold is low and more controlled, while a weak United States dollar could drive the price of gold to high levels due to an increase in demand. As the value of the U.S. dollar decreases, gold becomes cheaper in other currencies and demand could increase. In contrast, when the price of the U.S. dollar increases, gold becomes more expensive in other currencies and demand could lower. The prices of the shiny metal and the U.S. dollar may often seem to move in opposite directions due to investors’ sentiment but the relationship between the two is not set.

Safe Haven

During periods of economic uncertainty, economic recession or geopolitical crises, investors tend to turn to gold because its value doesn't generally depreciate. Investors consider gold to be a "safe haven" during times of economic instability.

When the actual or expected returns on equities, bonds, and real estate fall, the interest in gold investing tends to increase, driving up its price as a result. The valuable metal is a preferred asset employed as a hedge to protect investments against inflation and currency devaluation.

Gold Mining

South Africa, China, Russia, the United States, Peru, and Australia are some of the leading nations in gold mining. Despite a rise over a period of ten years, gold mining has not increased since 2016 as most of the metal close to the earth’s surface has already been mined. Miners are now required to dig deeper in the ground to reach high-quality gold. The fact that the precious metal is more difficult to access causes additional issues as miners are exposed to further hazards, and the impact on the environment is greater. Because of this, the cost of mining smaller than before quantities are higher. This can cause the price of gold to go up.  

Organizations that can Affect XAUUSD

Announcements, reports or actions taken by the following groups can potentially affect the price of XAUUSD.

  • WGC (World Gold Council): A market development organization for the industry of gold aiming to sustain and increase the demand for the precious metal.
  • LBMA (London Bullion Market Association): The international trade association representing the global over the counter bullion market.
  • COMEX (Commodity Exchange Inc): A futures and options market for trading metals.
  • Zurich Gold Pool: A gold trading arrangement established with agreements between UBS, the Swiss Bank Corporation and the Credit Suisse.
  • CGSE, the Chinese Gold & Silver Exchange Society: An organization of gold trading firms in Hong Kong participating in the Chinese Gold and Silver Exchange.
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