Everything You Need to Know About Trading Gold

History has shown that gold can withstand a downward economy. For many financial investors and traders, it’s considered a buffer in their portfolio that serves to stave off inflation and depression.

Trading gold in today’s’ online world has paved a golden way for the investors to profit from the daily price fluctuations or a break from the long term trends! Starting to trading in gold can be a big deal, but with the perfect steps and knowledge, you can nail it to the top. This may also include trading on gold Forex, plus exploring the various functional strategies for future options.

If you’re interested in entering this market, here are some things you need to know:

What Makes Gold So Precious?

Forbes revealed that gold remained highly coveted largely because gold reserves backed money in the U.S. The 37th POTUS, Richard Nixon, abolished that policy. Still, many traders put their money into gold to serve as protection from the recession that devalues the USD. While many equity investments are falling hard, the value of gold stays robust.

Different Types of Gold

Gold is traded in three main forms: bullion, stocks, and collectible coins. The Federal Trade Commission defines bullion as a term for precious metals measured by units of mass (e.g. troy ounces or grams). Ingots and bars are two common kinds of bullion.

Gold stocks, meanwhile, are shares in mining companies that look for gold and mutual funds that allocate capital into gold. Collectible coins have historical significance on top of its gold content. These are usually traded in auctions or via coin dealers.

Where to Trade

To help you get started, The Telegraph says you can approach a dealer who buys and sells gold. Your dealer can be an actual person or an online platform.

Another option is to trade gold on the stock market. Traders use ETFs (Exchange Traded Funds) which can be bought or sold like equity stocks. The ETFs correspond to either actual gold stored in a vault, or ‘derivatives’ which pertain to a value of gold specified in a contract. Your best bet is the former, because you can indirectly own a portion of a tangible gold asset.

Trading gold: How exactly do they work?

Before you sign up to any trading account, it is always important to understand the basics. Gold trading at the current market can be profitable as there are many options for the investors to follow! Go through some of them that can make it a good deal.

Gold bullion

Gold bullion is known as physical gold. It is often in the form of specialized coins or bars. The value that gets attributed to the precious metal majorly depends on the type of unit weight and bullion. But while you owe physical gold, it may seem easier than having large quantities of oil! Indeed, there is still some transaction fee, insurance, and storage costs that are considered in the process!

Gold certificates

These are similar to bank cash notes, which got its origination trace back to the 17th century. Indeed, if you owe a gold certificate, it largely determines the ownership of your gold finance.

Gold futures

The micro future finance and gold futures agree to a fixed for a fixed price for the commodity set at a specific date in the future. Since the gold futures are traded on exchange platforms, so automatically, they tend to promise more leverage than dealing in physical gold. Indeed, you will find that the returns are entirely dependent on the fluctuations in the price between the time a contract is agreed, followed by its expiry!

Gold CFDs

Gold contracts for difference, taken shortly as CFDs, are short-term orders that allow you to sell or buy a fixed amount of gold. Indeed, the Gold CFDs have a set expiry. The returns that are made for trading on gold CFDs will largely depend on price changes during the contract.

Gold ETFs

Gold exchange-traded funds (ETFs) are usually purchased from a stock exchange or a broker. They allow you to buy a pool of commodities or securities, for example, without purchasing all the individual assets. You will find the costs to be very low, but at the same time, the value of ETF is tied directly to the price of gold.

Gold swaps

Swaps are considered as the custom contracts that are traded over-the-counter (OTC). In contrast to that, options and futures contracts can be found on central exchanges.

The idea of trading gold in Forex

If you see, you will notice that gold is a currency in the Forex market. It is nearly always traded against the U.S. dollar with the code XAU/USD. So, picking the idea straight, your strategy needs to track movements in terms of the U.S. dollar. That means, if there is an increase in the U.S. dollar price, it could push the value of gold down. So, in order to understand it effectively, you must keep abreast of forex news websites and follow the tips on the upcoming analysis and trends. Indeed, if you are new to the game, let liquidity decide your stand for trading gold in Forex. Liquidity does play an important role when trading gold in the Forex market.

Trading gold strategy

You will find different mechanisms and techniques that can effectively employ in your gold trading strategies. Indeed, all of them would be requiring daily technical analysis on volume charts and pricings. Here are some ideas you can deal with for a better understanding.

  • Market volatility

This gives real-time trading signals to your charting software. It also responds to the market moves. If you feel the charts are not performing well, you can move to the golds. Contrastingly, when the stock market forecasts are strong, it is seen that the gold trading levels fall drastically.

  • Geopolitics

This provides a quick look at gold’s price history. You can see the predictions today that are well guided by geopolitical forces. Uncertainty in the financial markets will, in turn, cause businesses to hurry to gold, and so the pricing scales up.

  • Supply and Demand

If you see the volume data per day, it shows that half of the global demand is driven by jewelry production. Following this, the next 40% represents investment accounts. To make it simpler. Take a look at the price charts, and you will observe that when the demand is up and the supply is down, price tends to rise.

Advantages of Trading Gold

Aside from the security, as mentioned earlier, it provides, gold is virtually tax-free. When you sell it, you do not incur capital gains tax. FXCM’s page about the gold market adds that it doesn’t expire like copper. Traders are free to deal with it on the market as long as they want. Gold does not offer an immediate return on your investment like trading equity shares, but its value stays firm while share prices can fluctuate wildly. In other words, it can be a “save it for rainy day” kind of investment.

For a relatively conservative way to hold your money, trading gold is a good option. Just remember to be mindful of the spread rule among dealers when trying to sell it.

The bottom line

Be wary of “the spread” which is the difference between the price dealers sell the gold and the price they buy back the gold. Always expect that if you are selling gold to them, they will purchase it at lower than the market price. The type of bullion you sell affects how big the spread is. If you are selling ingots, the spread can be large. And when you sell a bar off, the entire value goes with it. But if you are selling gold coins, you can only retain some of its value because they’re made with a certain proportion of gold to other metals.