Gold was once the most valuable metal due to its cultural and economic value. Gold was an important part of the modern world monetary system in the 20th century, as it was pegged to the value of the US dollar until the 1970s.
Investors’ interest in gold is high because gold has long been considered a safe haven asset and its price increases when there is uncertainty in the financial world.
The term safe haven has long been used to refer to gold because the precious metal has been proven to hold its value in times of crisis. On the other hand, fiat money issued by the government often loses value in times of crisis as the government prints more money to finance the crisis.
Gold has long been used by the wealthy to store wealth and as an important medium of exchange, especially before the advent of fiat currency.
Although gold is considered a security, many factors can affect its market value, including:
- Central Banks: The price of gold is closely tied to central bank interest rates. Higher interest rates often cause gold prices to fall as investors choose to buy higher-yielding assets over gold that doesn’t have a positive return.
- Jewellery and demand: The jewellery sector continues to be the primary driver of global gold demand. Up to 80% of newly mined gold is used in jewellery, so the jewellery sector also contributes to the rise or fall of gold prices. Increased demand usually leads to higher prices and vice versa.
- USD: The price of gold is inversely proportional to the USD price, with an increase in the USD price causing the price of gold to fall and vice versa. The US dollar is often seen as a safe haven alternative to gold, so investors often sell US dollars when they buy gold.
- Economic and political crises: Gold is used as a hedge during periods of financial stress and political crises as a safe investment. The precious metal has proven over centuries that it can maintain its value during crises, hence, its designation as a safe-haven asset.
- Inflation: Investors have always used gold as a hedge against inflation, which usually erodes fiat currencies’ value. Demand for gold usually rises as investors shift their wealth to gold to protect it from devaluation.
There are many ways to trade or invest in gold, including traditional and conventional methods. Here are some popular ways to invest in gold:
- Gold holdings: This is a way to invest in gold. Investors buy and hold physical gold as an investment. However, selling gold bullion is not easy, so you need to hold it for a long time and it will be difficult to sell the gold.
- Gold futures contract: A futures contract is an agreement between a trader and seller through an intermediary, where the seller commits to sell gold to investors at a specified price on an agreed future date.
- Mutual Funds: Mutual funds provide an easy and flexible way to trade gold in the global market. Investors can quickly sell their gold investments if they need more money than they would to buy physical gold.
- Contracts for difference (CFDs): CFDs allow traders to trade gold without owning the yellow metal via virtual contracts. Traders can profit from both increases and declines in the price of gold using CFDs.
To increase your chances of success as a gold trader or investor, you should take the necessary steps to become a good trader, including:
- Follow the latest gold trading strategy.
- Having a clear trading plan with both long-term and short-term targets.
- Stay informed about political, financial news and other factors that can affect the price of gold.
- Given the relationship between the US dollar and gold, please pay attention to the current value of the US dollar.
In addition to the above conditions, you should choose a reliable broker that is licensed by the leading organization. Brokers should provide good work and services and support clients in various ways throughout the entire business process. These resources include educational materials and market research that will help investors make better decisions and become better investors.