Gold major use is as a reserve although also used for production of materials
. An additional role as serving as purchasing power is yet another role gold takes on.
The major exchange for gold although located in London is traded in us dollars with transactions taking place 24 hours a day over different time zones.
In the Forex market, gold is neutral, or in other words not tied to any particular country, so that increases in the price influence operations in several currencies. Gold prices are an important driver of forex market.
Since being a reserve currency the price is closely related to other alternative investments such as currencies, equities, bonds or even oil. Another great aspect investors really like about gold is that during periods of low liquidity or even monetary or political unrest is that the price of gold tends to actually rise in value.
The real price of gold adjusted today for inflation is much lower than it was in the 1980's. Although the equity markets have been highly unstable in recent years gold has been rising the whole time regardless of bull or bear equity moves.
In a strong upward trend since April of 2003 when gold was trading at $330 an ounce it is now as recently as December 2009 gold trading at $1,150 which is more than three fold.
Gold is bought and sold by many traders all over the world in the currency market largely as a speculative play as traders try t profit from small and large price movements. Since gold is used largely as a reserve the price is subject to many factors which cause the price to fluctuate.
Investing in the short term to earn more than other types of investments can be very risky. As always do your research and be prepared to also manage your risk.