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Investing in Gold

For hundreds of years, investing in gold has been the preferred market choice in times of uncertainty, and a substitute for keeping money. In the 1990s gold traded at $250 a troy ounce; today the price is about eight times as much. Online, gold is one of the most widely traded commodities.

When trying to assess what the gold price might do next it’s key, as with all commodities, to look at supply and demand.

For most metals this means comparing how much of the metal is being mined to how much is being bought as, say, jewellery or ingots.


But this equation is complicated for the yellow metal.  Gold is increasingly becoming a favoured investment for pension funds and speculators.  In addition, central banks are looking to hold some of their reserves in physical gold.

In terms of mining, the biggest producer is South Africa, with mines that can go five kilometres into the ground and take almost a full day to travel through. China, Australia, the US, Peru and Russia are also big gold producers.

The level of how much gold is mined globally tends to go slightly higher every year but in the short term, production can get disrupted by strikes, accidents or problems with electricity supplies.

On the demand side nowhere is gold as beloved as in India, Pakistan and the Middle East where festivals and big family occasions are marked with lavish gifts of gold jewellery.

China is nudging up in importance as a key gold buyer, here the consumers prefer gold bars to jewellery, similarly as in the US and in German-speaking parts of Europe.

When it comes to central bank holdings, there has been a complete U-turn in the way central banks view gold.

The trend in the 1990s was to sell gold reserves – the Bank of England infamously sold some of its gold holdings when prices were at their lowest – but this has changed completely since the credit crunch and now central banks, particularly those in emerging economies, are buying into gold to have at least some portion of their reserves stable unlike the part that is in currencies such as the dollar, yen or the euro and can wildly swing in value.

Gold is also one of the most widely traded commodities by online traders. There are several ways to gain exposure to gold. Investing in gold futures allows traders to express their opinion on the future price of gold without physically owning the metal. When you buy or sell a gold futures contract, you are agreeing to exchange a specified amount of gold at a predetermined price on a future date. It is estimated that only 3% of all futures contracts are delivered, the vast majority are offset before expiry or rolled to another monthly contract. These contracts are standardized and traded on exchanges like the CME Group, providing investors with a way to gain exposure to the gold market and potentially profit from price fluctuations. To start trading gold futures, you’ll need to open an account with a registered broker that offers access to the desired exchange. Once your account is set up and funded, you can begin placing trades based on your market analysis and trading strategy.

Another popular option is to invest in gold-backed exchange-traded funds (ETFs) or mutual funds, which are readily available on online trading accounts. These instruments allow you to gain exposure to gold without the need to physically hold the metal. They can be traded like stocks and provide an easy way to include gold in your investment portfolio.

Gold futures are financial contracts that allow traders to speculate on the future price of gold without physically owning the metal. When you buy or sell a gold futures contract, you are agreeing to exchange a specified amount of gold at a predetermined price on a future date. It is estimated that only 3% of all futures contracts are delivered, the vast majority are offset before expiry or rolled to another monthly contract. These contracts are standardized and traded on exchanges like the CME Group, providing investors with a way to gain exposure to the gold market and potentially profit from price fluctuations.

Gold futures offer leverage, meaning that investors can control a large amount of gold with a relatively small initial investment or margin. This leverage can amplify potential returns but also increases the risk of losses if the market moves against the trader’s position. Trading gold futures requires a solid risk management strategy and a good understanding of the market, including factors that influence gold prices, such as economic conditions, geopolitical events, and currency fluctuations. You can learn more about trading gold with our free online trading course here.

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