How to trade gold

Jun 11 / VT Markets
Gold has long been a highly prised precious metal, known for its lustrous appearance, unique properties, and historical use as a form of currency. While many global currencies were once backed by gold under the gold standard, this system was abandoned in the UK in 1931. However, gold continues to hold value as a stable asset, especially during times of economic uncertainty. With the global demand for gold steadily increasing, investing in or trading gold has become an attractive proposition for many investors.

STEP 1: UNDERSTANDING GOLD TRADING AND INVESTING

Before you start trading gold, it’s crucial to have a solid understanding of the different types of gold assets available. These assets can involve physically owning the metal or trading it without possession.

Physical Gold

The traditional method is to buy physical gold, which can include gold bullion, coins, or jewellery. However, this option requires security measures, logistics, and insurance, making it more common among banks and financial institutions rather than individual investors.

Spot Price Purchasing

This involves buying or selling gold upfront at the current market price per troy ounce. It allows active investors to gain exposure to gold without physical ownership.

Gold Futures

Futures contracts establish a fixed price for gold and specify a future date for the exchange. Investors speculate on market movements to achieve profitable returns.

Gold Options

Unlike futures, gold options do not require an exchange but provide the option to do so. There are two types: calls (buyers have the right to exchange) and puts (sellers have the right to exchange).

Gold ETFs

Exchange-traded funds (ETFs) are passive investments that track the movement of a basket of shares in gold-related companies. They offer investors broader exposure and portfolio diversification.

Gold Stocks

Investing in gold stocks involves buying shares in companies involved in gold production, mining, funding, or sales. Gold stocks may not always correlate directly with the price of gold, requiring a nuanced understanding of their price trends.

STEP 2: UNDERSTANDING PRICE DRIVERS FOR GOLD

To trade gold successfully, it’s important to grasp the factors that influence its price movements. Some major drivers include:

Mining

Gold mining affects the supply of new gold in the market. Although gold can be recycled, it remains a finite resource, and mining activity has slowed down globally. As demand increases and mining reserves dwindle, prices are likely to rise.

Demand

Gold demand has consistently increased over the years, driven primarily by jewellery consumption and gold ETFs. As supply declines, demand becomes a critical factor impacting gold prices.

Global Currencies

Gold often exhibits an inverse relationship with major world currencies, such as the US dollar, Japanese yen, or British pound. When gold rallies against these currencies, it is considered an opportune time to buy gold.

Interest Rates

Interest rate fluctuations affect gold prices. Rising interest rates tend to lower gold’s value as investors shift towards fixed-income assets. Conversely, declining interest rates drive investors back to the perceived security of gold.

Political, Economic, and Security Issues

Gold is considered a safe haven investment during times of market volatility, political instability, financial stress, or global events like the COVID-19 pandemic. These factors can cause significant spikes in gold prices. On the other hand, periods of economic prosperity and positive financial markets may reduce the demand for gold in favour of other assets.
STEP 3: CHOOSING YOUR GOLD TRADING OR INVESTMENT APPROACH
Based on your investment goals and risk tolerance, select the most suitable method for trading or investing in gold:

 * Trading: Trading gold allows for maximizing exposure and taking shorter-term positions. Spot trading, gold futures, and gold options are ideal for active traders looking to leverage their investments and hedge their portfolios.
 * Investing: Investing in gold is geared towards long-term gains and portfolio diversification. Gold ETFs and gold stocks provide exposure to the gold market and are better suited for investors seeking a broader investment horizon.

STEP 4: OPENING YOUR GOLD TRADING OR INVESTMENT ACCOUNT

After practicing with a risk-free demo account, you can start trading in live markets by creating a live Forex account. Setting up an account with VT Markets is a straightforward process, taking just a few minutes, even for beginners.

STEP 5: IDENTIFYING TRADING OPPORTUNITIES

With your trading or investment account, you’ll have access to various tools, technologies, and market analysis. Platforms like MetaTrader 4 and MetaTrader 5 offer features to help you identify the right opportunity for trading gold based on technical indicators and market trends.

STEP 6: EXECUTING YOUR FIRST GOLD TRADE OR INVESTMENT

When opening a gold trade, it’s essential to manage risk and avoid overexposure. Implement tools like stop-loss orders or limit-close orders to automatically close your trade when it reaches a predetermined threshold. Depending on your strategy and outlook, choose between spot trading, gold futures, gold options, gold ETFs, or gold stocks.

STEP 7: DEVELOPING YOUR STRATEGY AND CLOSING YOUR POSITION

Monitor your trade’s profit or loss position using the trading platform’s powerful tools. Stay informed about broader market trends and make informed decisions to close your position at an advantageous point according to your investment and trading strategy.

READY TO START TRADING GOLD?

If you’re ready to embark on your gold trading journey, VT Markets is an ideal platform offering exceptional customer service and an intuitive trading platform accessible from your computer or mobile device. Whether you want to learn how to trade gold, access market analysis, or receive Forex signals, VT Markets simplifies the process of market trading. Create your gold trading account today or contact us for further information about our trading tools.

SUMMARY:
  • Gold trading and investing have become attractive options for investors due to the stable value of gold, especially during times of economic uncertainty.
  • Understanding the different types of gold assets is crucial before trading gold, including physical gold, spot price purchasing, gold futures, gold options, gold ETFs, and gold stocks.
  • Factors that influence gold prices include mining activity, demand for gold, global currencies, interest rates, and political, economic, and security issues.
  • The choice of trading or investment approach depends on investment goals and risk tolerance, with spot trading, gold futures, and gold options suitable for active traders, while gold ETFs and gold stocks are better for long-term gains and portfolio diversification.
  • Developing a strategy and monitoring market trends are important for making informed decisions and closing positions at advantageous points according to the investment and trading strategy.

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Risk Warning: Trading Forex and CFDs carries the risk of losing substantially more than your initial investment and should only be traded with money you can afford to lose. You don't own or have any rights to the assets that underly the derivatives (e.g. the right to receive dividend payments). Ensure you fully understand the risks involved. Trading leveraged products may not be suitable for all investors. Before trading, please take into consideration your level of experience, investment objectives, and seek independent financial advice if necessary. Please ensure that you fully understand the risks before you make any trading decisions. The information on this website does not constitute investment advice or a recommendation or a solicitation to engage in any investment activity.
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