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For those traders who are interested in balancing their investment portfolios, precious metals trading is an important component, because precious metals are regarded as a hedging asset that can prevent inflation. In WCG, precious metals are quoted in US dollars.
This means that when trading gold, you are speculating whether the price of an ounce of gold will rise or fall against the US dollar. We assume that the current price of gold is $1,300.60. You think the price may rise in the future, so you buy 100 ounces (1 lot) of gold (code XAU/USD).
When the price rises to 1305.80, you decide to close the trade. Your profit is the difference between the opening price and closing price multiplied by the number of ounces you trade. In this transaction, your profit is $520.
Just as experienced investors like large institutions, tend to diversify their investment portfolios to reduce risks and increase returns. Gold trading is considered an excellent way to diversify your portfolio, because the price of gold is often inversely correlated with the stock market.
As inflation intensifies, currency will depreciate over time, and gold is more valuable than currency while facing inflation. Even in 2008 when the global market fell into recession, gold prices were hardly affected. In fact, from 2007 to 2008, the price of gold rose by about 4%.
About 95% of the world's gold is held as jewelry or under gold vaults. Compared with the amount of gold hoarded, the supply of gold has grown at a very low rate every year. Therefore, the price of gold has been rising for the past 50 years.
Precious metals are difficult to mine, resulting in their scarcity and high prices. This is why people call these metals “precious” metals.
Among all precious metals, gold is the most popular among traders. Gold provides a lot of trading opportunity for online traders. This is mainly because gold is unique and its position in the world economy is unique.
The gold market attracts a large number of traders. Most of them are looking for safe and profitable investment options to achieve sustainable wealth growth or to avoid the risks brought by other investments. This is why gold is so attractive. Participants in the gold market can be divided into the following two categories:
Mainly include individual investors and gold traders. Gold believers account for a huge proportion of the entire gold market. These people are fundamentally optimistic about this expensive commodity and allocate a large amount of assets to gold. A large number of retail players in the market are of this type. They often hold long-term positions and inject a large amount of liquidity into the gold market through continued purchase intentions.
Such institutions include hedge funds, banks, and brokerage companies involved in buying and selling gold. Most of these institutions use sophisticated calculation strategies to develop a diversified trading portfolio to provide customers with safe investment protection in a highly unstable market environment. Most of these institutions did not stick to gold trading. They often include other investment options in their portfolios.
There are many factors that affect the price of gold. The following is a brief overview of the influencing factors
These institutions participate in gold trading in order to regulate their foreign exchange reserves to stabilize the value of their currency. Therefore, the price of gold has been pushed up accordingly.
Crude oil and gold are closely linked because they are also priced in US dollars. In addition, the increase in crude oil prices will also increase inflation, which in turn will increase the price of gold.
Since gold is priced in U.S. dollars, when the value of U.S. dollars rises, it will naturally create downward pressure on gold prices.
When the stock market falls, traders often turn to buy gold, thereby boosting the price of gold.
The following table shows the price fluctuations of gold in the past 50 years. All in all, since 1970, the price of gold has been rising sharply.
During this period, the lowest return on investment in gold occurred between 1970 and 1979.
On the other hand, the largest increase occurred between 2000 and 2009.
Suppose you study the gold market and believe that the price of gold will rise. Therefore, you bought 1 lot of gold (that is, 100 ounces) at a price of 1,184.60.
This means that when the price of gold changes by 1 US dollar, the profit and loss brought to you is 100 US dollars.
People’s interest in gold surged, and a few days later, the price of gold reached $1,189.70. You decide to close the position and lock in profit.
Your total profit is calculated as follows: (1,189.70 – 1,184.60) x 100 USD = 510 USD.
The price of gold did not rise as expected, but fell to 1,180.30 US dollars. You decide to close the position and settle the loss.
The loss in this case is: (1,184.60-1,180.30) x 100 USD = 430 USD.
Although gold trading is the most common precious metal trading, traders who are aware of the diversified trading value of gold often explore other metal markets, such as silver.
