Trading gold, the most popular commodity in the entire world, can be challenging. Even so, this trading market offers great opportunities and high liquidity. Regardless of current trends in the gold market, it always holds a unique position in the world’s political and economic systems. Many participants are unable to benefit from fluctuations in gold prices because they are unaware of the market’s unique characteristics. Gold trading includes numerous options and opportunities for traders. Besides opportunities, it’s important to understand hidden pitfalls because of how they unexpectedly rob you of profits.
Trading in gold isn’t as hard as it seems. All you need to do is develop the skill of understanding the global gold market. By the end of this article, you will have enough knowledge about the gold market and will be able to make your first trade. So let’s begin by understanding what gold trading is all about.
What is Gold Trading?
Gold trading is about speculating gold prices in the market. You can make a profit through shares or spot prices, futures, exchange-traded funds, and options. Usually, the trade takes place through cash instead of gold coins or bars during a transaction. You may trade in gold for various reasons, such as hedge against instability, wanting to buy ownership of physical gold or pure speculation.
With gold trading, you do not have to consider that old mantra of selling high and buying low. You can go long or short depending on your strategy. This means that you can take advantage of the market, whether prices are rising or falling. Regardless of your position, you need to foresee the direction of the market. Your profits and losses depend on how far the market will go in the direction you predicted.
How does Gold Trading Works?
Before signing up for a gold trading account, you should have basic knowledge about the gold market. Gold trading offers different options in today’s market. Some of those options are:
- Gold Bullion
These commodities are in physical forms such as gold coins or bars. The value of this metal depends on the type and weight of the bullion. Many traders prefer trading with gold instead of large quantities of oil because they find it transparent and feasible. However, there are storage costs, transaction fees, and insurance that you should consider before trading in physical gold.
- Gold Certificates
Gold certificates are similar to cash banknotes and originated in the 17th century. Trading in these certificates revolves around ownership. This means that you are not selling any commodity but rather transferring ownership of gold certificates.
- Gold Futures
Gold futures include more leverage because the trading takes place on exchange platforms. However, physical gold does not include as much leverage. The contracts of gold futures and micro futures have agreed upon values for the commodity upon a certain date in the future. The returns, on the other hand, depend on the price fluctuation between the expiry date and the time of the contract.
Trading Gold Strategies
When trading with gold, you can follow different techniques and understand the mechanisms that influence the value of the gold. You can make a buying or selling decision by checking the volume charts and technical analysis on price. You should also keep an eye on factors influencing gold prices. Here are some major factors that influence gold prices:
- Supply and Demand
If you will consider the daily volume data, you will realize that half of the global demand depends on jewelry production. Another 40% of the trades take place through investment accounts. When you will observe the price chart, you will notice that price increases with the decrease in supply and increase in demand. This indicates that demand and supply are inversely proportional.
- Market Volatility
The value of gold also depends on the stock market because people who trade in the stocks move to gold when their markets are not favorable. On the other hand, if they anticipate that the stocks are about to rise, they shift towards the stock. So, the stock market will influence the gold value in the market.
Geopolitical forces have a great influence on the rise and fall of gold prices. For instance, a sudden change in the financial market due to a political event will force businesses to rush towards gold. This will elevate the prices. So, if you have little knowledge about global economic, this is the right time to brush up on some basics and understand the map of the world.
Gold trading does not include any profit calculator, but your decisions totally depend on your market analysis and techniques. When it comes to gold trading, the initial step would be creating a trading plan. Keep in mind that as gold trading can make you a millionaire, your decisions may also result in losses. So, you need to follow the plan, learn from your wrong decisions, and analyze the daily gold market.
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