In the past, gold was the most sought-after precious metal due to its cultural and financial value. Gold was an integral part of the modern world currency valuation system during the twentieth century, as it was pegged to the US dollar’s value up to 1970.

Investor appetite for gold has always been high, given that the commodity has always been regarded as a safe-haven asset whose value rises whenever there is uncertainty in the global financial markets.

The term safe-haven has always been used to refer to gold because the precious metal has proven that it can maintain its value in times of crisis. On the other hand, fiat currencies issued by governments usually lose value in volatile times as governments print more money to fund emergency expenditures.

Gold has been used for a long time by wealthy individuals to store their wealth and as a critical medium of exchange, especially before the advent of fiat currencies.

Although gold is regarded as being safe, some factors affect its trading price, including:

  • Central banks: Gold’s price is closely attached to central banks’ interest rates as part of their monetary policy decisions. High interest rates usually lead to low gold prices as investors prefer to buy interest-bearing assets instead of gold, which has no intrinsic yields.

  • Jewellery industry and demand: The jewellery industry is still a big driver behind the rising demand for gold globally. Up to 80% of the newly mined gold is used to manufacture jewellery. Hence, the jewellery industry contributes significantly to the rising or falling gold prices. Rising demand usually results in rising prices and vice versa.

  • Dollar: The price of gold is inversely related to the US dollar’s price, with rising dollar prices resulting in lower gold prices and vice versa. The dollar is primarily regarded as a safe-haven alternative to gold; hence, if investors are buying gold, they usually sell the dollar.

  • 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 both traditional and modern methods. Here are some of the popular ways to invest in the yellow metal:

  • Gold bullion: This is one of the traditional ways to invest in gold. Investors buy and hold physical gold as an investment. However, it is not easy to sell gold bullion; hence, you might have to hold it for a long time and might have challenges selling the gold.

  • Gold futures contracts: A futures contract is an agreement between the investor and the seller mediated by an intermediary where the seller promises to sell gold at a specific price to the investor at an agreed future date.

  • Mutual funds: Mutual funds provide an easy and flexible way to trade gold within the global markets. Investors can quickly sell their gold investments if they need to access their funds instead of buying 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 must follow the necessary steps to become a successful trader, including:

  • Following the correct gold trading strategies.

  • Having a clear trading plan with both long-term and short-term targets.

  • Always be informed of the significant political and economic news and other fundamental factors that could affect gold’s price.

  • Continuously monitor the US dollar’s current price given its close relationship with gold.

In addition to the above factors, you should choose a reliable broker licensed by tier 1 regulators. The broker should also provide a great trading experience and services to support its clients in various ways throughout their trading journey. Such resources include educational materials and market research that helps traders make the right decisions to become better traders.

High-risk investment warning: Trading Foreign Exchange (Forex) and Contracts for Differences (CFDs) is highly speculative, carries a high level of risk and may not be suitable for all investors. You may sustain a loss of some or all of your invested capital, therefore, you should not speculate with capital that you cannot afford to lose. You should be aware of all the risks associated with trading on margin. Any opinions, news, research, analysis, prices or other information contained in this presentation is provided as general market commentary and does not constitute investment advice.

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