What is Gold Trading and How Can I Trade Gold Online?

Gold trading, one of the world’s oldest investment vehicles, plays a significant role in the global economy. It involves the buying and selling of gold to profit from price movements. As gold markets are highly volatile, traders attempt to gain returns from buying the commodity when the price is low and selling when it is high or taking a short position on the precious metal when the prices are expected to fall.

Why Trade Gold?

Investors trade gold for several reasons, including its utility as a hedge against inflation, its haven quality during political or economic instability, and portfolio diversification. Gold deposits are rare and difficult to find, and extracting the metal from mines is time-consuming and expensive. This means that any disruption to mining or a substantial increase in demand can push the price of gold.

What Moves Gold Prices?

Several factors influence the price of gold. High inflation has historically supported the gold spot price as the precious metal retains its value even as the purchasing power of fiat currencies declines. Monetary policy decisions on inflation by the world’s biggest central banks, such as the US Federal Reserve (Fed), European Central Bank (ECB), and Bank of England (BoE), are, therefore, critical considerations for what affects gold prices.

The value of the US dollar also impacts gold prices. As the US dollar rises in value against other currencies, gold becomes more expensive for buyers who use non-US dollar currencies, and demand falls. On the other hand, a fall in the dollar’s value makes gold cheaper for overseas buyers and demand increases.

Physical demand for gold jewellery can also affect the precious metal’s price. Gold jewellery is often bought for investment purposes and is gifted in China and India – the world’s biggest buyers – during festivals and weddings.

Investment demand for gold tends to rise during economic or geopolitical uncertainty, as the precious metal is viewed as a haven asset that retains its value. Recession, stock market volatility, geopolitical tensions, natural disasters, and unexpected events like the coronavirus pandemic can increase investment demand.

Gold Trading Strategies

Before investing in the yellow metal, you must be clear on your strategy. Several gold trading strategies can help you determine when to enter and exit a trade and how to manage a position. At the same time, it is open rather than basing decisions on pure speculation.

1. Position Trading: A trader keeps a long trading position open to benefit from the change in the gold price over a long period.
2. News Trading: A shorter-term strategy to trade gold that refers to trading based on news, such as central bank policy statements or economic data releases.
3. Trend Trading: Traders look for patterns in the movement of the gold price to identify strong trends. When the price is in an upward trend, it may be expected to continue rising, while a downward trend could see the price continue to fall.
4. Day Trading: Day traders hold a position open for a single trading session, acting on intraday gold price fluctuations.
5. Price Action Trading: A price action strategy is a gold trading system where traders look at the recent price movement to decide when to enter or exit a position.

How to Trade Gold Online?

You can use several options to trade gold depending on your trading or investing strategy and portfolio composition, from buying physical metal to using derivatives.

1. Gold Bullion: Investors who buy precious metals as a hedge against inflation and stock market crashes tend to accept them in their physical form. You can purchase gold bullion as bars, ingots, or coins.
2. Spot Gold: Gold spot refers to the price that the precious metal can be bought and sold for immediate settlement rather than a date in the future.
3. Gold Futures: Futures contracts enable you to exchange gold for a fixed price on a set date in the future. You’d be obligated to uphold your end of the deal, whether through a physical or cash settlement.
4. Gold Options: Options contracts work similarly to futures but are not obligated to execute the trade when buying. Options allow you to exchange physical gold or lots at a specific price on a date.
5. Gold ETFs: Exchange-traded funds (ETFs) track the movement of a basket of shares of publicly traded gold mining, refining, and production companies.
6. Gold Stocks: Trading on or investing in stocks can be a great way to get indirect exposure to gold. You can gain exposure to every element of the gold industry, from mining and production to funding and sales.

In conclusion, gold trading is a complex process that requires a deep understanding of market dynamics and a well-planned strategy. It’s crucial to stay updated with global economic trends and news that could impact gold prices. While gold trading can be profitable, it also carries risks, and managing your risk effectively is essential.