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Gold trading: is gold a good investment?

08:27, 24 January 2019

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Gold trading: is gold a good investment?

What makes gold so valuable?

Gold is a commodity that has been used for coinage and jewelry throughout the ages. Historically, the precious metal was the world’s currency of choice. Gold very much underpinned global monetary systems until very recently – whether that be through the gold specie (where gold coins were a unit of currency), or more familiarly, the gold standard, where a country’s currency is valued by the amount of gold the central bank has in reserves. Due to its scarcity, gold has always been valued highly, and is synonymous with wealth and prosperity. That sentiment still prevails today in financial markets.

Why invest in gold?

why invest in gold

Some critics question whether gold is a good investment. Today, investors choose to buy gold primarily for one of three reasons. Namely, investors buy gold as either: a hedge against inflation, a safe haven in times of economic crisis or as a direct investment.

Gold as a hedge

A hedge is an investment aimed to offset losses in another asset. It is common for investors to buy gold in an attempt to hedge against a loss in another asset class. Between 2002 and 2007, the price of gold more than doubled. This was partly due to the decline of the US dollar. Investors rushed away from forex markets to commodities. Subsequent inflation also meant gold was used to hedge against the effects of inflation on fiat currencies. During the global economic recession of 2008, the Federal Reserve introduced a quantitative easing programme to avoid potential deflation. Investors thought this could have adverse effects on the dollar so continued to use gold as a hegde. Some investors continue to use gold as a wealth preservation tactic due to inflationary fears.

Gold as a safe haven

Gold is commonly described as a safe haven. Rightly, or wrongly, gold is bought during times of economic uncertainty and crisis. This is why several investors purchased gold during the 2008 global financial crisis. During the midst of the eurozone debt crisis, gold prices continued to rise. When investors doubt whole economies, they purchase gold. It has the image of stability even in times of vast economic uncertainty. A company you hold shares in can become insolvent, a fiat currency can be eroded by inflation, but there is a consensus that gold will always hold some value.

Gold as an investment

Some investors hold gold as an investment for the future, speculating increases in the price of gold over time. Gold is held by many governments and extremely wealthy individuals, so it has institutional acceptance as a long-term investment.

XRP/USD

0.47 Price
-6.190% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 0.00600

BTC/USD

19,140.80 Price
+1.050% 1D Chg, %
Long position overnight fee -0.0500%
Short position overnight fee 0.0140%
Overnight fee time 21:00 (UTC)
Spread 66.00

Natural Gas

7.09 Price
+0.780% 1D Chg, %
Long position overnight fee -0.0992%
Short position overnight fee 0.0688%
Overnight fee time 21:00 (UTC)
Spread 0.005

US100

11,237.70 Price
-0.750% 1D Chg, %
Long position overnight fee -0.0138%
Short position overnight fee 0.0041%
Overnight fee time 21:00 (UTC)
Spread 1.5

How does gold fare compared to other precious metals?

 Is gold a good investment

Gold is not the only commodity that is also a precious metal offered by markets. The four most popular precious metals that are traded within financial markets are: gold, silver, platinum and palladium. Silver is the cheapest of the four metals, as is evident by its spot price – traded between $10 and $20. Although silver is the most abundant of these metals, it transpires that above-ground silver is actually scarcer than above-ground gold.

Platinum is much less abundant than both silver and gold, but the platinum spot has slipped from $1,000 to $785 over the last year. It is worth noting that, historically, platinum is more expensive than gold – but platinum is effectively as cheap as it has ever been, whereas gold is effectively as expensive as it has ever been.

Palladium is one of the rarest metals – 15x rarer than platinum – on the planet, and is currently the most expensive precious metal. Palladium spot is currently trading around the $1,340 mark.

Read more about gold trading:

  1. Gold trading: is gold a good investment?

  2. Gold trading: a brief overview of gold price history

  3. Gold trading: how to invest in gold?

  4. Gold trading: how to trade gold CFDs

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