Gold trading refers to the process of making speculations on gold pricing in the markets in order to make a profit. Gold prices are evaluated with reference to futures, spot prices, options, exchange-traded funds and other factors. There are different reasons why people opt to trade in gold. Visit MultiBank Group
Gold markets are known to be extremely volatile and therefore, one needs to be cautious while trading in gold. Owing to price fluctuations and a large number of instruments available at one’s disposal, you have to take each and every step after putting in a lot of thought. The risks are quite high but there is a chance to make a good profit in this market.
What Affects Gold Prices?
Before you learn to trade gold online, you must first get a good understanding of the factors that affect the price of gold. Once you get good clarity on this subject, you will be able to take the right decisions while trading gold. It will also enable to bring down the possibility of you suffering from a loss.
Here are some of the factors that affect gold prices:
· Currency Value
The value of the currency which is used in the country you are trading gold in plays a very important role in determining its price. The demand for gold, often, is inversely proportional to the movement of the currency value in the country.
As the value of a particular currency rises, gold tends to get more expensive and less accessible. Because of this, its demand decreases. A fall in the currency’s value, on the other hand, results in its demand increasing.
High inflation has proved to be a positive factor for the gold spot price. When this happens, the value of gold remains the same even as flat currencies’ purchasing power drops. This is one of the most important things you need to remember when you trade in gold.
When you are analyzing gold prices, you must have a look at some of the recent policy decisions made by international central banks like the European Central Bank, US Federal Reserve, and Bank of England on inflation. Central banks resort to interest rates to regulate the rate of inflation. This, in turn, has a direct effect on the pricing of gold.
· Investment Needs
Contrary to what some people believe, the biggest demand for gold doesn’t come from industrial uses. It comes from investment and commercial jewelry markets. Investment demand for gold grows significantly when there is geopolitical or economic unrest happening around.
Investors have the option of purchasing physical gold coins, bars, and a variety of financial instruments that are linked to gold. Investment needs are largely driven by market sentiment. It could also get affected by factors like a recession.
Gold prices are greatly affected by the quantity in which they are produced or available at a given point in time. Mining output, therefore, is one of the biggest determinants behind gold pricing. When supply slows down, the price of gold increases. Similarly, when a new mine or production facility opens up, its price decreases.
According to a report compiled by the World Gold Council, close to 3,500 tonnes of gold gets mined every year. Around a decade ago, the annual mining output stood at 2,800 tonnes. Every year, around 1,100 tonnes of gold are recovered using recycling processes.
· Physical Demand
One of the most obvious determining factors behind gold pricing is its overall physical demand. There are different reasons behind people wanting to own gold in some physical form. While many buy it for investment purposes, it is used as a gifting item in countries like India and China.
Usually, the demand for physical gold increases during times when a country is witnessing solid economic growth. When the economic health of a country is good, you can expect the demand for gold to be high as well.
Trading Gold Online
The kind of success you will have as a gold trader depends on your trading choices and how well you play the game. The basic process of trading gold, however, is not too complex. Firstly, you have to create a trading account that you can use to execute your trading activities.
After that, you have to determine the gold market you want to get into. The next process involves opening your first position. Once that is done, you can monitor your trade with the help of fundamental and technical analysis.
· Gold Spot Prices
Gold spot prices make it possible for you to trade the gold’s value at a particular moment instantaneously. You do not have to plan and fix a future date for the same. Since the spot commodity markets are non-expiring in nature, the gold prices are based on the contracts of gold futures.
· Gold Futures
Future contracts have often been described as the primary method to trade gold. It can be defined as an agreement that specifies the terms and conditions pertaining to purchasing and selling gold at a fixed price on a particular date in the future. Though future contracts prove to be useful while assuming possession of a particular physical commodity, you have the option of not going down that lane.
Gold contracts trade is largely carried out on the US futures market COMEX, OTC London market, and Shanghai Gold Exchange. All these exchanges work as intermediary platforms that deal in futures contracts instead of physical commodities. The standard gold futures serve as a representation of gold worth 100 troy ounces.
· Gold Stocks
To get good exposure to real-time gold prices, you should trade gold stocks and ETFs. Gold stocks comprise all those companies that deal in gold mining and exploration. Gold stocks are closely connected to the price of gold in the market. When the demand for gold rises, these companies benefit in a huge way.
It must be remembered that the growth of a company and stock returns are also driven by the production costs, management strategy and hedging activities carried out by the organizations. Some of the most prominent gold industry players around are Franco Nevada Corp, Barrick Gold Corp, and Newmont Corp.