Gold is an important precious metal that has been around for years. Its valuable nature can be seen in some of the oldest manuscripts ever recorded. It has also become one of the most popular financial assets in the world.
Let’s take a quote from Robert kiyosakiauthorRich Dad Poor Dad“, among other things:
Commodities like gold and silver have a global market that transcends national borders, politics, religions and ethnicity. One may not love another person’s religion, but he will accept his gold.”
It should suffice to show how gold has taken on a function beyond just a commodity.
In this article we will look at Some of the most important things You need to know gold trading and investing.
major gold producers
Gold is produced in several countries around the world. China has become the largest gold mining country In the world. It currently produces more than 380 tons of gold each year. Followed by countries like AustraliaAnd the RussiaAnd the United StateAnd the Canada. At its peak in the 1970s, South Africa was the world’s largest producer.
Meanwhile, bigger gold mining company In the world known as Newmont Company. It is followed by other companies such as Barrick Gold, Franco-Nevada, Agnico Eagle Mines and others.
Related “ Why you should have gold in your wallet
Gold is a unique metal in a variety of ways. For example, unlike most other metals such as platinum, palladium, copper and nickel, Gold does not have any great uses in the industrial sector. In fact, most of the gold that is mined is used for investment purposes.
Gold has four main properties:
- Gold is money. In fact, the US dollar has been tied to gold for a long time. As such, it’s a shop for the value.
- Often seen as a file Inflation insurance policy. Unlike fiat currencies, a central bank cannot print gold. Therefore, many investors buy it to protect themselves from inflation.
- gold continuous And it doesn’t change.
- that it flexible metal Which has gone through most crises like the internet bubble and the global financial crisis (GFC) as well.
Gold as a hedge against inflation
For a long time, gold proponents have argued that gold is a good way to hedge against inflation. The theory is that gold will always be good when inflation is high. but, In the past few years, this theory has been debunked.
For example, the global economy went through a difficult period in 2022 after Russia invaded Ukraine. At that time, most countries experienced a rise in inflation to record years. In countries such as the United Kingdom, the European Union and the United States, inflation has risen to its highest levels in more than 4 decades.
Now, if he hedges against inflation, gold prices are expected to rise during that period. But This is not what happened. As seen below, gold is down more than 17% from its highest point during the year.
Different ways to trade and invest in gold
There are several methods you can use to trade and invest in gold. First, you can Invest in real gold. This is where you buy and keep real gold bars.
In the United States there are many gold dealers that you can use easily. but, This approach is not recommended Because of the massive nature of gold and the existence of security implications.
Second, you can Use a broker to trade gold. Most forex and CFD brokers offer gold as a financial derivative that you can trade. It also provides you with leverage that you can use to trade gold easily.
Focus on ETFs
Third, you can Focus on gold ETFs. An ETF is a financial product that tracks the performance of an individual or multiple assets. The most popular gold ETFs are the SPDR Gold Stock (GLD) and the iShares Gold Trust (IAU). These ETFs are Ideal as they trade like stocks.
Moreover, you can trade gold mining stocks. The idea is that these stocks will do well when gold prices are good as well. However, you must be cerfull About this opinion As most companies have other internal issues Like management and debt.
The main factors of gold prices
there Many things that move gold prices. The most important is monetary policy by the Federal Reserve. In most cases, Gold does well when the Fed adopts a more dovish tone vice versa.
For example, gold jumped to an all-time high in 2020 as the Federal Reserve cut interest rates and launched the largest ever quantitative easing policy.
As shown above, gold collapsed in 2022 as the Fed adopted its most hawkish tone in decades. By August, the Fed was able to raise interest rates by 225 basis points and cut its balance sheet by billions of dollars.
Second, gold reacts to it geopolitics.
In most periods, gold rises in periods of global tension as it is seen as a safe haven. For example, gold rose during the trade war that occurred under Trump.
Third, gold tends to Track the performance of other financial assets Like stocks.
In most cases, gold is closely correlated with US indices such as the S&P 500 and Dow Jones. It also has an inverse relationship with the US dollar.
Gold Trading Strategies
Traders use different strategies when trading gold. First, there Pairs Trading Concept Because of its association with stocks and other assets. Therefore, some traders work out the correlation coefficient between the two and then place trades accordingly.
secondly, Some traders focus on scalping. This is where they buy and sell gold within a few minutes with the aim of making a profit. Third, there are those who use it swing tradingwhere they identify specific topics and hold trades for a few days.
A popular trading strategy is known as Follow trend. This is where the trader identifies an existing trend and then follows it.
For example, in 2022, a trader would have made a short position on gold and held it until things started to change. One way to follow the trend is to use trend indicators such as moving averages and Bollinger Bands.
Gold is important for a number of reasons, although it lacks the practical usefulness that other metals such as copper may have.
We’ve also seen why this commodity is so important to short and medium term investors and traders, highlighting some of the best gold trading strategies to use on different assets.