Best Online Gold Trading Platform – Learn more about gold trading, from how the market works and what drives prices, to the different types of instruments and trading strategies. Read on to find out how to trade gold with CFDs on .
Gold trading is one of the oldest investment vehicles in the world. The precious metal plays an important role in the global economy. There have long been markets for trading gold in some form in all cultures, serving as an indicator of wealth and prosperity.
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The metal is prized well beyond its industrial use, as gold deposits are rare and hard to find. Extracting metal from mines is an expensive and time consuming undertaking. This means that any interruption in mining or a substantial increase in demand can drive up the price of gold.
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Why do investors trade gold? There are several important reasons to invest in or trade the precious metal, including its usefulness as an inflation hedge, its safe-haven quality in times of political or economic instability, and for portfolio diversification. Although this is not guaranteed, it has long been considered a high-level general strategy.
Gold trading refers to buying and selling gold in an attempt to profit from price movements. Since gold markets are considered to be highly volatile, traders try to make a profit by buying the commodity when the price is low and selling when it is high, or by shorting the precious metal when prices are expected to fall.
Careful consideration is required when trading gold, due to the large price fluctuations and wide variety of instruments available, from gold derivatives such as futures and contracts for difference (CFDs), to shares of gold mining companies.
Before you start trading gold, you should be aware that the market can be extremely volatile, resulting in a high degree of risk. The chances of making a profit when trading gold go hand in hand with the risk of loss.
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Before learning how to trade gold, it is important to understand what influences the price of gold. This knowledge can help you make informed trading decisions and mitigate your risk of loss.
What drives gold prices can vary at different times, depending on the prevailing sentiment in financial markets. Below are some of the main factors to consider.
Historically, high inflation has supported the spot price of gold, as the precious metal retains its value even as the purchasing power of fiat currencies declines.
Monetary policy decisions on inflation by the world’s largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England (BoE), are, therefore one of the key considerations as to what affects gold prices. Central banks often use interest rates to control the rate of inflation, which can also influence gold prices.
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Although the US dollar is no longer tied to the gold standard, gold prices tend to move in the opposite direction to the dollar.
Why is that? As the value of the US dollar rises against other currencies, gold becomes more expensive for buyers using currencies other than the US dollar and demand falls. On the other hand, a drop in the value of the dollar makes gold cheaper for foreign buyers and increases demand.
The demand for gold jewelry can also affect the price of the precious metal. Gold jewelry is often bought for investment purposes and given as gifts in China and India, the world’s biggest buyers, during festivals and weddings.
In times of strong economic growth, the demand for gold jewelry tends to increase. Demand for gold fell during the Covid-19 pandemic as lockdowns prevented consumers from visiting brick-and-mortar jewelry stores.
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Investment demand for gold tends to increase in times of economic or geopolitical uncertainty, as the precious metal is considered a safe haven asset that retains its value. Recession, stock market volatility, geopolitical tensions, natural disasters, and unexpected events like the coronavirus pandemic can boost investment demand.
Investors can buy physical gold bars and coins or gold-linked financial instruments, such as exchange-traded or mutual funds (ETFs). Investment demand can be highly volatile depending on market sentiment, but it averages around 1,000 tons per year, according to data compiled by the World Gold Council.
Mine production can affect gold prices, if production is interrupted at a mine, the available supply is reduced. Conversely, when a new mine starts operating, the supply increases.
About 3,500 tons of gold are mined annually, up from 2,800 tons a decade ago, according to data from the World Gold Council. Another 1,100 tons are recovered from recycling annually.
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In the last decade, China, Australia, Russia and the United States were the leaders in gold production. Historically, South Africa was also a great player, but the country has lost its position in recent years.
As one of the world’s oldest means of exchange, the history of the gold price has always been volatile. However, there have been periods of inactivity with relatively little movement in the price of gold until the 1970s.
In 1971, after the gold standard for the US dollar was removed, a long uptrend began. Since then, the price of gold has risen and fallen in response to supply and demand dynamics and various macroeconomic factors. Below is the historical chart of the price of gold for the last 10 years:
The spot price of gold reached its most recent all-time high of $2,072.50 in August 2020 as investors fled to the safe-haven asset with the Covid-19 pandemic battering the global economy and central banks cutting interest rates. to almost zero.
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The gold price chart shows that the precious metal approached that level again in March 2022 in response to the Russian invasion of Ukraine, but subsequently pulled back as central banks began raising interest rates aggressively in an attempt to combat high inflation.
The debt crisis continues. Gold falls $105 an ounce on August 24, one of its few triple-digit losses, after hitting a record high the day before.
The economic expansion. Gold experienced its biggest daily drop since 1983 on April 15, 2013, falling 8.9% to $1,347.29 an ounce.
Gold falls to a six-year low in December as the US Federal Reserve raises interest rates for the first time in nearly 10 years.
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Gold reaches a new high in August 2020 in flight to safety during the outbreak of the Covid-19 pandemic.
Gold approaches a record above $2,000 an ounce in March 2022 when Russia invades Ukraine; the price subsequently falls below $1,700/oz due to concerns about the global economy and rising interest rates.
With this story in mind, are you looking for how to invest in gold? Consider some of the most popular options.
There are several options you can use to trade gold depending on your trading or investment strategy and the composition of your portfolio, from buying the physical metal to using derivatives. The currency code for spot gold is XAU, which refers to the price of one troy ounce of gold and reflects the earlier use of the gold standard to establish the value of various currencies.
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Investors who buy precious metals to hedge against inflation and stock market crashes tend to buy them in their physical form. You can buy gold bullion in the form of bars, ingots or coins.
The physical metal is easy to buy and sell, and is considered a low-risk asset since it operates outside of the banking system. However, owning physical metal requires you to arrange secure storage and pay storage costs.
If you choose to invest in gold through a trading account, you can trade spot gold or futures. What is the spot price of gold? The gold point refers to the price at which the precious metal can be bought and sold for immediate liquidation, rather than a date in the future.
In reality, gold is usually bought at a discount to the spot price and sold at a premium, as traders make a profit on the trade. Spot gold traders can use technical analysis to determine entry levels to buy and sell the metal.
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What are gold futures? If you expect the value of gold to move substantially in the future, you can trade gold futures contracts. These are contracts that are traded on commodity exchanges and allow investors to speculate on the future price of gold. Under the contract, the buyer agrees to receive a specified amount of gold at a specified price on a specified date in the future.
Where are gold futures traded? The three main regional gold futures markets globally are the over-the-counter (OTC) market between dealers, brokers and banks in London, the Commodity Exchange (COMEX) in the US, and the Shanghai Gold Exchange in China. .
If you are interested in how to invest in gold futures, you will need a brokerage account with access to futures contracts.
An alternative to buying or selling physical gold or futures contracts outright is options trading. If you are looking for how to trade gold options, there are two types: calls and puts.
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A call option gives the holder the right to buy gold at a fixed price on the expiration date of the option contract. A put option gives the holder the option to sell gold at the specified price on the expiration date.
Although futures and options are similar, an options contract does not force the buyer to make