Gold markets to trade
08:00, 21 October 2024
Last week, we explored the basic fundamental and technical approaches to gold trading. Having covered the key price drivers of this critical asset and how you might use data to trade it, you’re ready to assess the conditions for entry. But there are a range of markets that can effectively give you exposure to gold.
Gold CFDs
Gold CFDs are a popular derivative product that allows traders to speculate on the price movements of gold without owning the physical metal. Of course, trading a CFD over buying bullion means you can potentially profit from both rising and falling gold prices. Also, CFDs are traded on margin, meaning you can control a larger position with a smaller initial outlay, but this also amplifies potential losses.
Gold CFDs offer flexibility and accessibility, making them a favoured choice for traders looking to capitalise on short-term market movements. However, they also carry higher risk due to leverage and market volatility.
Gold ETFs
Gold ETFs, such as SPDR Gold Shares (GLD), are exchange-traded funds that seek to track the price of gold. Specifically, GLD is one of the largest and most popular gold ETFs in the world, and many consider it a cost-effective and convenient way to invest in gold without having to physically own the metal.
Here are some of the characteristics of GLD:
- Backed by physical gold: Each share of the ETF represents a fraction of an ounce of gold, which is held in trust by the fund. The gold is stored in secure vaults, typically in locations like London.
- Price tracking: The value of GLD fluctuates with the spot price of gold, making it a direct way to gain exposure to gold price movements.
- Liquidity: As an ETF, GLD can be bought and sold on stock exchanges, providing liquidity and ease of trading similar to that of stocks.
- Diversification: Investors often use GLD to diversify their portfolios, as gold typically behaves differently from stocks and bonds, especially during times of economic uncertainty.
Gold mining stocks
Gold mining stocks such as Eldorado Gold represent shares in companies that are involved in the exploration, development, and production of gold. When you trade their shares, you can get indirect exposure to gold prices, as the profitability of these companies typically rises with the value of gold and vice versa. However, gold mining stocks also reflect the operational and geopolitical risks of the companies, such as production costs, regulatory issues, and local economic conditions. While they can provide leverage to the price of gold they also carry additional risks compared to direct gold investments.
Gold CFDs Other markets In addition to these, there are other proxy markets to gold that can be traded, such as forex pairs involving the Australian dollar (AUD) and South African rand (ZAR). These currencies are tied to the gold price due to their countries’ involvement in mining and production. Also, silver has often historically moved in tandem with the gold price, depending on market conditions – although past performance is not a reliable indicator of future results.
Event: Europe GDP: 30 October, 9:00am UTC
Why it matters for gold: European GDP can potentially impact gold prices by influencing the euro's strength against the US dollar and shaping global economic sentiment, which in turn affects demand for gold as a safe-haven asset.
Event: US core personal consumption expenditures: 31 October, 12:30pm UTC
Why it matters for gold: The core PCE price index can potentially impact gold by influencing inflation expectations and the likelihood of interest rate changes, which in turn affect the US dollar and the demand for gold.
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