Gold is considered a popular precious metal and is also the earliest mined metal in the world. It is believed to have originated from space debris and not from planet Earth. Gold is also one of the oldest forms of currency. It has also been used by human civilisations since its discovery, nearly 5,000 years back. The underlying reason for introducing the Gold Standard was to keep inflation under control as paper currency had to be limited to the gold bullion with the Treasury, although this practice has now been discontinued.
Despite the discovery of more gold reserves in places such as the US, experts have declared that only around 55,000 tons of gold remain and is arguable whether these can be extracted.
Nowadays, online metal trading is gaining more and more popularity and gold is less of a status symbol and more of a safety mechanism. This is because the value of gold has risen owing to its scarcity. Gold is now traded on CFDs, which no longer requires owning the physical asset.
What are the different ways of trading gold?
Gold trading is the process of generating revenue from the difference in the price of gold due to market fluctuations. There are multiple ways for silver traders or metal traders to trade gold, such as:
- Gold ETFs. The main point of consideration in an ETF as against mutual funds is that its units are listed and tradable on the exchange. It is a good investment option for short-term investors as there is no bar on withdrawals; hence it is highly liquid.
- Gold loans. These are sovereign gold bonds which the government offers to the public via the London Stock Exchange and typically come with an interest rate that forms a regular source of income for investors. These are most suitable for mid to long-term investors as there is usually a lock-in period for such investments.
- CFDs. Contract for difference is the most common route for seasoned traders as they keep track of market price movements and know exactly when to enter and exit the trades. Trading gold via CFDs is based on the idea of speculating on the price of gold, rising or falling. Traders’ profit or loss is determined by the change in the price of gold during the duration of the contract. When trading gold CFDs, you can buy in both rising and falling markets. The same happens with other assets. In other words, a contract for difference is a financial derivative that enables traders to trade on margin, providing them with greater exposure to precious metal trading and the gold market. Instead of buying actual gold, traders buy or sell units for a specific financial instrument based on whether they think the underlying price will rise or fall.
Futures and Options Contracts
Futures contracts enable an investor to ascertain a future price at which the contract will be settled, be it in physical or cash. On the other hand, options contracts give the trader an option to buy or sell a contract at a future date (until expiry), with a minimal option price. These are good trading options for speculative purposes, which expert traders exploit to hedge their portfolios. Gold trading online reduces exposure to inflation and stock market crashes.
How to benefit when gold prices fluctuate?
Demand for gold is due to its use in several industries such as in the manufacturing of jewellery or in its use in technology and as a financial reserve. Ever since industrialisation and more so with globalisation, the rise in electronics has quadrupled since the 1970s, some other reasons being withdrawal from the Gold Standard and a rise in population.
Although gold is a stable asset, it has historically seen many price fluctuations due to policy changes and the discovery of new mines. One way to potentially generate some revenue through gold in these times is by owning shares of companies involved in the mining and processing of bullion. But this is a very risky endeavour because of prevalent uncertainties.
Another way to benefit from gold trading online can be through investment in sovereign bonds in stable regimes, as these are denoted as legal tender and therefore are highly secure investments. Gold ETFs can be easily traded via popular commodity exchanges such as Chicago Mercantile Exchange, Tokyo Commodity Exchange, etc. The gold price can also fluctuate by trading in gold leveraged forex pairs.
Final Thoughts about Gold trading
It is very important to understand how forex and commodity trading works in general before someone jumps into the arena of gold trading. Although it looks rather daunting but given all the technical strategies and analyses through market research, it can potentially be a good investment. However, traders need to be careful with regards to the timing of entering and exiting trades as well as with deciding the investment term, as this makes all the difference.
Trading gold CFDs with IronFX
Being a leading broker since 2010, IronFX is a trusted broker for trading CFDs on gold. With ample educational and trading material as well as advanced services and conditions, traders can utilise:
- 500+ financial instruments
- Diversification of portfolio
- Risk-free demo account
- Going long or short
- MT4 trading platform
There is also the IronFX Trading School and the trading blog which traders can explore to take their trading to the next level.
