Gold Trade - How To Trade Or Invest In Gold

  • 2022-05-18

Gold is a commodity that has been with us right from ancient times, more recently hitting its all-time high value of $2,505 per ounce in 1980. We could expect it to remain an important commodity well into the far future. Its value surpassing $2,000 in 2022 is enough evidence for that. 

Regardless of this, however, there is a whole lot more to dealing in this precious metal than a lot of people know. What if we told you it is both one of the most stable and volatile commodities you could trade and invest in? How is this paradox possible?

This article sheds light on the gold trade, answering the questions

- Why is Gold an important commodity?

- What influences the price of Gold?

- What Are The Different Methods Of Trading In Gold? and 

- How To Capitalize On Gold Using CFDs? Let’s get right in.

What Is Gold Trading?

A lot of people buy gold as direct consumers of it, most popularly as wearable jewelry or, rather more extravagantly, as a display of wealth and prosperity within other objects and goods. The use of gold in trading is different from its use on the side of consumerism.

Gold trading is simply the buying and selling of gold. It involves investments in gold for profit, with this profit coming from either an increase in its value or a decrease in it. It also involves conventional long-term and short-term investments.

Some will say gold trading and gold investing are two different concepts. The position is that gold investing involves buying and owning the asset while trading involves only taking positions on the price of gold based on people purchasing/investing in it. Either way, the market offers a lot of possibilities and you can take advantage of it.  

The global gold trading hours are between 5 PM to 4 PM from Sunday to Friday, meaning it is a six-day trading market that holds a lot of promise.

Why Trade Gold?

There are multiple reasons to trade gold and the first is its stability. Gold is one of the rarest, most difficult, and most expensive commodities to find and mine out there, and it is a safe haven for investors. 

Although gold production has exponentially increased since 1970, its current global supply has only just surpassed 4,500 tonnes, which is little, considering its history of use.

What this means is that it still maintains a high value in times of difficulties, like domestic inflations and even international financial crises. Investors confidently protect their investment capital from massive losses by storing value in gold. This is one of the reasons for its volatility and this volatility is an opportunity for investors to capitalize on the market.   

How To Deal In Gold

Gold offers investors a chance to hold interests in a diversified portfolio and this is owed to its multiple trading mediums

Gold bullion is the first of the lot, representing the direct purchase of/investment in physical gold as a direct store of value. This is more popularly done by banks and, although investors engage in it, its high-maintenance requirement pushes them to other gold assets.

Gold Futures is a way of trading gold by exchanging it for a fixed price at a strict future date. Here, the deal you make is determined by future market predictions, and you are obligated to uphold your end of the bargain (by either buying or selling gold) at the set future date. Gold options are a way of engaging in this type of trading without the strict obligation to buy gold. 

Gold Exchange Traded Funds (ETFs) involve trading in the shares of mutuals or companies that have their worth tied to gold. Shares replicate the price of gold and, for instance, these could be companies that mine and produce gold. It is a great way to indirectly engage in gold trading, with gold CFDs serving as instruments that prove to be very useful.

Trading In Gold CFDs

A gold contract for difference (CFD) is a contract between a trader and broker that offers you an easier way to deal with the commodity. Whether to capitalize on a rise or fall in price, you aim to make profits from the difference in value between the time you go into the trade and opt-out of it.

Brokers offer you leverage to engage in this type of trade, allowing you to get into a $10,000 trade with only $1,000, for instance. Although there are risks like the lack of liquidity, this form of investment instrument is a good option for day traders. It allows you to take advantage of financial leverage to deal with costly assets and make exponential profits.

Understanding What Affects The Price Of Gold

The price of gold and the volatility of the gold market are determined by several factors. The most influential is the global demand for the commodity. Its use as an investment safe haven accounted for 46.64% in 2020, and jewelry accounted for 36.83%. An increase in this demand causes an increase in its value and vice versa.

Mining production also affects the value of gold. The less gold there is in supply against massive demand, the higher the prices go. Unfortunately (or fortunately for investors), gold mining has reduced over the past decade and this signals a shortage in supply against demand.

Another factor includes high-interest rates in traditional stock markets which causes investors to switch from gold. This leads to a fall in the value of gold. The value of the US dollar also has an inverse effect on the price of gold, while increased financial turmoil increases the value of gold. 

All of these lead to volatility in the gold market and, thankfully, there is a barrage of channels you could deal with it. Rather known as gold assets, these mediums offer you a chance at both “investing” and “trading”.

Gold Trade Or Gold Investment?

As mentioned before, gold trading and gold investing are two seemingly different concepts. You may be wondering which one you have to engage in as these depends on the type of trader you are.

Trade gold if you are a short-term trader that prefers to capitalize on the volatility of the market. Leverage short-term positions and diversify your portfolio without having to own the commodity.

Invest in gold if you have a lot of money and expect long-term growth in the market.

Is Gold Trade Worth It?

Gold is stable and here to stay, and its volatile trade offers you a lot of advantages and options no matter the type of trader you are. Perhaps the most enticing of these is dealing in Gold CFDs and you don’t want to miss out on great deals from brokers. Don’t be afraid to take a position in the market and diversify your portfolio if you are interested.