Gold is possibly the most lucrative of all the precious metal trading options because of its unique properties. It is incredibly durable, resisting corrosion and rusting, as well as malleable, and it also acts as a conductor for both electricity and heat. It can be used for numerous industrial applications, for example in electronics and dentistry, however it is best known for its use as a base for jewellery and as a kind of currency.
There are numerous investment options open to those who wish to participate in gold trading online. Here are some of the most common:
- Commodity ETFs – ETFs or Exchange Traded Funds are accessible for all kinds of precious metals including gold. This is a liquid and convenient way of buying and selling gold.
- Mutual Funds and Common Stocks – This is a type of investment where precious metal miners’ shares are leveraged to the price movements in the precious metals market.
- Options and Futures – These markets offer leverage and liquidity to traders who are looking to make a large investment in precious metals like gold. The biggest profits can be made with derivative products, however large losses can also occur.
- Gold bullion – Gold bars and coins are large, heavy and cumbersome and therefore are only suitable for those who have a safe place in which to store them. However if an investor expects the worst or needs a portable investment, this is a good choice.
- Certificates – Certificates bring trades all of the benefits of physically owning gold without any of the difficulties of storage or transportation. However in an emergency, it is important to remember that a certificate cannot be exchanged for anything of real value.
Gold is one of the oldest currencies in the world and forms the basis of the financial world, however it is affected by only a few price catalysts.
When an investor trades gold in response to one polarity while its opposite pole is controlling the price action, they are facing a higher risk. For example, should a sell off hit financial markets around the world in a major way, a trader may assume that fear will move the gold market and invest in the belief that fearful emotions will carry the price higher, however instead fears of inflation may trigger a decline with other traders selling aggressively which would cause a loss. There is always a combination of these forces at play in the world’s financial markets and these establish long term themes of long down trends and up trends.
Throughout history, one of the primary determinants of the price of gold is the level of real interest rates – the interest rate with inflation subtracted. If the real interest rate is low, alternative investments such as bonds and cash bring low or even negative returns which encourages investors to seek out other ways to protect their wealth. Conversely, if the real interest rate is high, both bonds and cash produce high returns and therefore gold holds less appeal as an investment.
Other factors which have an impact are indications which affect inflation like interest rate change announcements, treasury auctions and the Consumer and Producer price indices. Macroeconomic indicators like the GDP and Unemployment Rate reveal the state of a nation’s economy which may then encourage investors to either invest in gold or otherwise.
Changes in political climate can have a major impact upon gold’s prices. Should there be uncertainty about a war or conflict, investors may perceive that investing in a country’s currency or bonds could be risky and therefore choose to move their funds into gold.