Here are some things that you should know about trading with gold!
The Different Types of Gold Assets
In the market, there are many different types of assets related to gold. Here are some of the gold assets that you can use to trade with:
Spot gold- This is the most traded form of gold assets. It is highly beneficial if you would like to buy gold without having to worry about owning gold bullions.
Gold futures - Gold futures are financial derivatives that would allow you to swap gold for a fixed price for a specific period in the future. You are obligated to uphold your part of the agreement in a futures contract.
Gold ETFs - Exchange Traded Funds, or ETFs, are financial assets that bundle together a variety of companies related to the production of gold. ETFs diversify your portfolio as your risk is spread amongst the various shares of the companies.
This thus makes Gold ETFs a passive stock, as it aims to follow the current growth of the economy.
Gold Stocks - Stocks related to every aspect of Gold are also frequently traded. Note that gold stocks do not always move with bullion prices, as other factors such as company performance are taken into account.
How Do Gold Prices Move
Gold moves via various factors such as:
Demand - The demand for gold has been rapidly increasing every year since the 1970s. Usage for gold ranges from jewelry and technology to financial resources for banks and institutions. Gold's demand mainly comes from jewelry, accounting for over 50% of global demand.
Supply - Gold supply is finite, and it has been shown that gold production has been on a slow down within the last few years. Gold miners are also slowing down their exploration to reduce costs, further decreasing gold supplies globally.
Even though there are more initiatives in preserving gold supplies through scientific research and recycling, the gold supply could further decrease. This thus caused gold prices to rise.
Interest rate - Gold prices fall as interest rates rise and vice versa. This is due to investors emphasizing more on fixed-income assets as the interest rate rises and safe-haven assets as the interest rate falls.
Economic instability - Economic instability is also another driving factor for gold prices. As economic conditions worsen, investors buy gold as a haven asset to hedge against any economic downturns.
This can be seen during the 2020 Covid-19 pandemic, where gold prices increase by 13% as fear of economic instability is rampant.
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With these tips listed, you will be sure to be able to make it big on your next gold trade!