The Ultimate Guide To Gold Trading



What is gold trading?
Gold is one of the world’s oldest and most trusted forms of currency. For traders, gold's intrinsic value – or “safe haven” appeal – makes it a popular investment and a great way to diversify a portfolio.

There are two main ways to invest in gold. The first is buying physical gold, or shares in a mutual or exchange-traded fund that follows the real-time price of gold.

The second is to take advantage of price fluctuations in the commodity trading market and trade derivatives linked to gold, such as futures, CFDs, options and more. Two of the most popular gold derivatives are gold CFDs and gold futures.

How does the gold market work?
Gold is primarily traded over-the-counter (OTC) and on exchanges. London is the global centre for the OTC market, where market participants trade directly with each other. While this market is less regulated and has a higher degree of flexibility, the counter party risk is higher.

Exchanges are regulated platforms and trading is centralised. They usually offer a standardised contract, which will not suit every trader, as it limits their flexibility.

Aside from London, the other two major gold trading centres are New York City and Shanghai. The COMEX exchange is located in NYC, while the Shanghai Gold Exchange is located in Shanghai.

Different ways to trade gold
Discover the different ways that traders can access the gold market, whether they are interested in trading or investing in the precious metal commodity.

CFDs (Contracts for Difference)
CFD trading is speculating on the rising or falling prices of global financial markets – such as indices, commodities, shares or cryptocurrencies. A CFD trade is a contract between an investor and a broker to settle on the difference in the value of a financial asset or instrument for the duration of the contract.

At the time of closing the contract (a trade), if the price is higher than the opening price, there will be a positive return for the buyer. The seller has to pay the buyer the difference, and that will be the buyer’s profit. The opposite is true if the trade price is lower than the opening price and the buyer will suffer a loss.

Gold Futures
A futures contract is a contract to buy or sell a particular asset at a predetermined price at a specified time in the future. Futures are particularly popular amongst short-term traders who wish to speculate on the direction of the gold price. It can also be used for hedging purposes - for example, an investor holding physical gold will not want to sell those frequently, as the transaction more info costs would add up quickly. Instead, the investor could go short on gold to gain from a decline, while keeping their physical gold as a long-term investment.

ETFs
Exchanged traded funds have seen a meteoric rise in the past few years, as they are a cost-effective way to invest in a certain asset. Gold ETFs could be suitable for investors looking to invest in gold while keeping transaction costs low.

Different ways to invest in gold
Gold coins
Gold coins still remain popular with the 5 most popular gold coins being the Krugerrand (South Africa), American Eagle (United States), Canadian Maple (Canada), Australian Nugget (Australia) and the Chinese Panda (China). The disadvantage is that those coins will always be sold at a premium, and investors need to store it appropriately, which can add to the costs (for example, buying a safe or renting a safe in a bank).

Gold bars
Gold bars are available in a variety of dimensions. Premiums are a bit lower, and the market for gold bars is more liquid than for coins.

Gold mining stocks
Gold mining stocks can be traded or invested in through individual stocks, stock CFDs or ETFs that consist of a portfolio of gold miners.

What affects the price of gold?
There are multiple factors that can affect the gold price, but the following are amongst the major ones:

Geopolitical developments
The precious metal is generally seen as a safe haven, and prices tend to rise during times of geopolitical tensions.

Inflation fears
During times when investors are worried about rising inflation, gold will generally appreciate, as holding cash becomes increasingly unattractive.

Monetary policy
Gold and the US Dollar have an inverse relationship. Therefore, expectations of rising interest rates in the US will boost the Dollar and put Gold under pressure. On the other side, should US rate expectations decrease, the US Dollar may decline while gold prices rally.

Physical supply/demand
Buying gold ETFs or trading gold CFDs and futures has become popular, but physical gold is still being used for the production of jewellery and investment (e.g. coins and bars). Demand for such products will have an influence on the gold price too.

Advantages of gold trading
Discover the advantages and disadvantages of trading the safe haven precious metal.

Gold has historically been a good hedge against inflation. Inflation is the No. 1 enemy for investors. During times of turbulence when the stock market is in distress and cash is losing value due to low interest rates, gold can become an attractive asset class for investors to own.
While the gold price is fluctuating and occasionally sees high volatility, the metal has maintained its value over the long-term and is therefore seen as stable investment.
Gold is highly liquid, meaning buyers will easily find sellers in the market, and vice-versa. This is important as it lowers transaction costs and reassures traders and investors. Even the market for physical gold is liquid, as it is not difficult to find a buyer.
Gold is a great diversification tool. It can outperform the stock market during certain periods (e.g. a period with broad risk-off sentiment).

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Comments on “The Ultimate Guide To Gold Trading”

Leave a Reply

Gravatar