A guide to gold trading

Gold is one of the most widely traded raw materials around the world and the most popular of the precious metals. It’s one of the earliest traded assets, existing long before other markets. Gold trading offers lots of opportunities for investors.

Investing in gold is one of the most popular forms of trading

Gold belongs to the commodities market, along with other precious metals including silver, platinum and palladium.

The price of gold can fluctuate depending on social, political and economic instability.

Trading gold is referred to as a ‘safe haven’ by traders because its price is not always affected by governmental decisions or inflated by interest rates.

Why invest in gold?

Safe haven

Unlike currencies, gold is not directly affected by interest rate decisions and cannot be printed to control its supply and demand. Gold is a scarce asset that has maintained its value over time and can act as an insurance policy during adverse economic events. Therefore, gold is considered a ‘safe haven’ asset by many investors.

套期保值

Gold prices often increase alongside increasing inflation rates and a depreciating dollar. When their trading positions are declining in value, some traders decide to invest in gold to balance out their potential losses. This is known as hedging in the gold market, and it is a popular trading strategy. Gold hedging reinforces the idea of precious metals as a ‘safe haven’ for traders.

Diversification of portfolio

Having a diverse investment portfolio reduces risk and volatility. Adding gold to your portfolio is a way of diversifying your portfolio and spreading your trading across a range of markets. The price of gold may increase in response to events that would cause the price of other financial instruments to decrease.

There are different ways to invest in gold

There are several options for trading this asset.

Physical gold

An easy option would be to buy and sell physical gold at its spot price. The spot price of gold represents the exact current price that a buyer can buy or sell the instrument. Note though that physical gold cannot be stored as easily as other financial assets.

Gold ETFs

Exchange-traded funds provide exposure to the gold market as many ETFs track the movements of the commodity. ETFs are considered a more liquid and less-costly investment compared to owning physical gold.

Gold CFDs

Gold CFDs (contracts for difference) are leveraged products that require you to deposit a small percentage of the overall trade value, which is referred to as margin requirement. You do not actually own the underlying asset but agree to exchange the difference in value from the time difference between opening and closing the position.

Is gold a good investment now?

Gold is a good investment asset to have as part of a balanced portfolio. Gold has some of the highest liquidity in the commodity markets and has increased in value over time.

If you invested £1,000 in gold 30 years ago, it has since then increased by over 500%. This means your original investment is worth over £5,000. However, past performance is not an indicator of future performance but an asset that has shown strong performance over many years could be preferred to one that hasn’t performed so well.

Coronavirus and the price of gold

When the stock markets crashed during the Covid-19 pandemic, gold reached new highs not seen since 2012. Many analysts still predicting further gains. This is most probably due to investors reallocating their wealth into gold, as it is known as a ‘safe haven’ and a hedge to stock markets and financial uncertainty.

Gold is a good investment in the right circumstances

The key to successful investing in gold involves knowing in what circumstances to choose an asset. Therefore, gold can be a good investment, but it can depend on your personal circumstances and gold’s suitability to your portfolio. As with all financial assets, investing in and trading on gold comes with risks of losing capital.

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