What To Know About Gold Trading

Gold is a timeless asset that offers investors an alternative to paper assets. Gold’s uniqueness comes from its liquidity and its unique historical price movement. The “safe haven” asset’s price is driven by supply and demand demonstrated through customer behaviour.

Here is your chance to learn what you need to know about trading in gold.

Why investors love gold

Gold’s safe haven status has been long established by the way investors flock to it when more volatile assets like stocks depreciate during times of uncertainty. It’s also a relatively stable asset for a few reasons.

When it comes to stability, gold is affected by supply and demand differently from paper assets. Cash loses value when it is printed due to inflation. Compared to cash, the supply of gold is relatively consistent. Gold mining adds some supply of gold every year, but far less than cash. The World Gold Council estimates the range of gold entering the market at between 2,500 to 3,000 tonnes per year. 

This is why many investors view gold as an inflation hedge. However, gold’s relationship to inflation isn’t as rosy, as numerous studies have demonstrated that inflationary pressure still applies to it, just less so in the long term.

In terms of being a safe haven asset, there has been research done that shows its correlation to market volatility. When market uncertainty leads to the depreciation of paper assets, one of the key assets that investors flock to is gold.

Gold is also largely held by central banks around the world. They hold most of the world’s supply and bought 400 tonnes during the Q3 of 2022 as noted in the World Gold Council’s quarterly report. The Reserve Bank of Australia releases data on the amount of gold held every year. Central bank activity has a major impact on gold prices, as they buy and sell massive quantities of it at different times.

Gold is widely regarded as an alternative investment class, largely because of the different price pressures it is subject to. This is why experts who recommend gold (and other precious metals) as a part of your portfolio recommend a small portion of less than 10% of your overall portfolio (e.g. Balance Money and billionaire investor, Ray Dalio) The main reasons to consider including gold in your portfolio include:

• Gold’s high liquidity
• Its perceived value as an inflation hedge
• Its proven utility as a safe haven asset (geopolitical changes affect it less than oil, and other commodities)
• Its long-term value

As a trading instrument, its volatility is well known and presents both risks and a wealth of opportunities.

Gold Investments

There are several options for investing and trading in gold.

Gold Bullion

Most gold investments are in gold bullion. Gold bullion means physical gold delivered in standardised gold bars and coins. Bullion is highly liquid and can be stored in secured vaults, for which investors pay a custodial fee.

Gold Stocks

There are other ways to invest in gold, including rolled, securitised assets and jewellery.

Stocks in gold mining companies are also an option and follow different price pressures than other types of stock investments, including in commodity companies. Gold mining stocks are also more straightforward than bullion, though you will need to consider if there is a charge on custodial considerations.

Gold mining company stocks are not the same as gold bullion investments. Gold stocks function similarly to any traditional stocks, but trends in gold could affect the price performance of gold mining company shares.

Gold CFD Trading 

A Contract for Difference (CFD) allows you to speculate on the price movements of an underlying asset without having to take the ownership of that asset. In this case, you speculate the price movements of Gold.

Vantage allows you to trade across a variety of products, from FX and commodities, to shares and equity indices as well as precious metal CFDs, including Gold CFD trading. With Vantage, you get to trade XAUUSD CFD swap-free, where no overnight fees are charged for your open positions. See more information here

Start trading Gold CFD with Vantage. To learn more about how you can open an account and start trading today, click here.