Gold doesn’t just respond to global events – it thrives on them, transforming uncertainty into opportunity for investors worldwide. Their relationship has been identified for a very long while now, and at times it seems somewhat toxic with one benefiting off the downfall of the other.

When any political powerhouse around the world is involved in some form of crisis – militaristic, financial, industrial, or even an act of aggression by mother nature herself – gold trading typically moves in the opposite, upwardly, direction.

Today we’ll study the relationship between the global events and their effects on trade of gold.

Gold’s Position in the Global Market

Gold has cemented its place in the financial markets for literal ages. It is not only a commodity but also a hedge against inflation and a safe-haven asset – not to mention a high-class status symbol. Unlike fiat currencies, which are subject to inflation and instability, gold has proven itself over the course of history as resilient during times of crisis.

But it may help us out by knowing where the demand for gold comes from. The majority of the global demand for gold comes from:

• Jewelry: Basically, since its discovery, gold has been used as a way to show off wealth. Romans used gold to make anything they could out of gold and place around it their house to show how wealthy they are. This included jewelry. In today’s world, two countries – China and India – account for nearly 50% of the global jewelry demand. In total across all sectors, jewelry accounted for ~49% of gold demand in 2023.

• Investment: Gold bars, coins, and ETFs are sought after by investors looking to preserve wealth. New entrants into the gold investment methods are digital gold and gold-backed currencies, like our DAU tokens, and they are usually backed by physical gold stored in vaults. Investments accounted for 23% of gold demand in 2023.

• Central banks: Central banks are major annual purchasers of gold, therefore keeping gold’s demand high. In 2023, central banks added 1,037 tonnes of gold to their reserves – the second highest amount ever purchased. This sector accounted for 21% of global gold demand in 2023.

• Technology: Gold is used in industrial applications, electronics, technology, dentistry, etc. Its efficient conductive properties make it very valuable to tech producers. Technology had the lowest demand for gold in 2023, although that number may increase soon.

How Global Events Impact Gold Trading Trends

Knowing the sources can then give us an idea on what types of events have to happen in the world for there to be an impact on gold prices. Let’s explore these global events in more detail to be sure:

1. Economic Crises and Recessions Historically, economic downturns and recessions have been among the most significant drivers of gold demand. When economies contract and financial markets become volatile, as it does during a recession or depression, investors seek safe-haven assets to protect their wealth. Gold, as a tangible asset with intrinsic value, becomes the preferred investment to combat losses during a recession.

For example, during the 2008 Global Financial Crisis, gold prices surged as the U.S. housing market collapsed, leading to widespread panic in financial markets. As stocks plummeted, investors turned to gold as a hedge, driving up its price by over 25% between 2008 and 2009.

Similarly, in 2020, the COVID-19 pandemic caused global markets to crash. Gold prices hit all-time highs, surpassing $2,000 per ounce in mid-2020, as central banks worldwide adopted loose monetary policies and injected massive liquidity into their economies to stimulate growth. This economic uncertainty drove gold demand as a hedge against both currency devaluation and market instability.

2. Inflationary Pressures Inflation is another key factor affecting gold trading trends. When inflation rises, the purchasing power of the region’s paper money declines, making gold more attractive as a store of value. Historically, gold has shown a strong inverse relationship with the US Dollar; when inflation reduces the value of the currency, gold prices tend to rise.

In the 1970s, during a period of high inflation – caused by the oil crisis, monetary prices and government borrowing – gold prices skyrocketed. By the end of the decade, gold had risen from $35 per ounce to as high as $850 in 1980, a direct result of inflation fears and a weakening U.S. dollar.

In recent years, inflation has again become a focal point for investors due to pandemic-related disruptions and the massive fiscal stimulus provided by governments. The U.S. inflation rate hit multi-decade highs in 2022, driving a renewed interest in gold as a hedge against rising prices.

3. Geopolitical Tensions and Conflicts Geopolitical instability or regional / international conflicts – especially aggressive ones – are major drivers of gold prices. Gold trading volumes often spike during wars, conflicts, or political crises, as investors seek to de-risk their portfolios. Gold is most attractive in these situations because it is unbothered by geopolitical boundaries, making it a global asset in times of uncertainty.

The ongoing Russian-Ukraine conflict serves as a recent example – with other examples even more recent. In 2022, the conflict caused a sharp increase in gold demand as investors looked for alternatives to riskier assets like stocks and bonds. Gold surged by over 6% in Q1 of 2022, reaching its highest level since 2020.

Political instability, such as Brexit in the United Kingdom or trade tensions between major economies like the U.S. and China, can also lead to sharp fluctuations in gold prices as investors adjust their portfolios to mitigate risk.

4. Central Bank Policies and Interest Rates When central banks like the U.S. Federal Reserve lower interest rates to stimulate the economy (allowing people to take out more affordable loans for mortgages, business loans, etc.), gold prices can go in either direction.

If people are confident about the rate-change, then general spending increases, employment increases, and inflation does not skyrocket. So, people would be less inclined to buy a non-yielding asset especially when the appeal to buy other things is much greater. Though, this is usually not the case.

Most people do fear inflation regardless of general sentiment or government reassurances, and would therefore purchase gold; thus, increasing the price of gold.

Conversely, if the Fed raises interest rates, this can have the opposite effect and put pressure on gold prices as investors shift to interest-bearing assets like bonds. However, during periods of extreme economic uncertainty, even rising rates may not deter gold’s appeal as a hedge against broader financial risks.

For instance, in the aftermath of the 2008 financial crisis, central banks across the globe slashed interest rates drastically in a coordinated response. This led to a sharp increase in gold prices, as investors sought refuge in the non-yielding asset. Central banks also continued to add gold to their reserves, further driving demand of the precious metal.

5. Currency Movements Similar to point #1, when the dollar weakens – meaning the value of the currency drops – gold becomes cheaper for investors holding other currencies, which ultimately increases demand. This is because the price of gold is closely tied to the U.S. dollar. Conversely, a strong dollar can make gold more expensive and reduce global demand.

6. Technological and Industry Shifts While not as major of an impact as the others mentioned already, technological and industrial advancements have brought about a higher degree of demand on the precious metal. Moreover, the rise of digital platforms and gold-backed cryptocurrencies has made gold more accessible to retail investors, contributing to increased trading volumes.

Platforms such as Paxos Gold (PAXG), Tether Gold (XAUT), and our very own DAU tokens, allow investors to hold digital assets backed by physical gold, thus expanding gold's reach in the modern financial system.

7. Natural Disasters Destructive acts of nature can even affect the price of gold. A very interesting study by SSRN in 2019 confirms natural disasters can mostly raise the price of gold, but there are cases when gold is negatively affected by a natural disaster. They looked at 4 different types of disasters between 1960 and 2015, and found that over the first thirty days post-disaster:

• Hydrological: 3.31% increase

• Meteorological: 0.69% increase

• Climatological: 2.44% increase

• Geophysical: -4.08% decrease

These disasters can affect the supply chain or mining operations of gold, especially a geophysical occurrence (like an earthquake), which can increase the price of gold since the supply has not grown but demand is ever increasing.

Gold Trading in the Era of Tokenization

Tokenization is transforming the way investors access gold. Digital Gold tokens have emerged as an innovative way to trade gold, offering fractional ownership and seamless global transfers. Platforms like ours have created new opportunities for investors who want to trade or invest in gold without the need for physical storage.

Real World Asset (RWA) tokenization is becoming one of the largest market opportunities in the blockchain industry. Essentially, RWAs take an asset found in the real world – like real estate, cash, intellectual property, and commodities like gold – and puts them on the blockchain.

Blockchain technology allows for greater transparency and ease of trading, contributing to increased liquidity in the market – in our case, gold.

These innovations are changing the traditional dynamics of gold trading, making it easier for retail investors to participate. This is something we are passionate about and want to be a part of the story that ushers in this new era.

Future Trends in Gold Trading

As we continue down this path of evolving gold trading, we expect to see a few trends take shape or grow:

• Increasing demand for gold-backed digital assets As the digital currency market continues to grow, and the world becomes more educated on the benefits and process of owning digital assets, gold-backed tokens are likely to become an increasingly popular way to invest in gold.

• Central bank policies Central banks have hit new highs on gold purchases, and this will likely remain as we see continued inflationary pressures and monetary policy shifts both drive demand for gold as a hedge against economic instability.

• Sustainability and ethical sourcing Higher degree of scrutiny on the environmental and ethical sourcing of gold would create a demand for the “greener gold”, affecting the supply side of the market.

• Geopolitical conflicts Continued or larger political conflicts would drive investors and individuals towards a safer asset to protect their wealth from their depreciated currencies.

Conclusion

As we’ve now seen, gold and global events are closely tied. From economic crises and inflationary pressures to geopolitical conflicts and technological innovations, each factor impacts gold trading in unique ways.

Advancements like RWAs have transformed traditional gold trading, allowing more accessible and diversified investment avenues for a wider market. Digital gold assets continue to rise in popularity, with platforms like ours at the forefront of innovation, making gold more accessible to retail investors worldwide.

With continued central bank gold acquisitions, a growing demand on sustainable practices, and the ever-present influence of political and economic uncertainties, gold remains a resilient, strategic asset in a rapidly changing world.