Over long periods of time, gold has been considered to be a most important precious metal compared to coins or other types of assets. Gold has a privileged place in the global economy, so investors use it as a means of hedging inflation or to pass their wealth from one generation to the next.
There are many ways to invest in gold, ranging from the actual purchase and storage of gold bullion or speculation in gold via both spot and forward prices, as well as stocks and ETFs on global stock exchanges.
Forbes published a report written by Doc David Tress, in which he explained how to invest in gold and its various mechanisms.
Investment or trading? Which is better?
In the beginning, the report defined the difference between investing in gold and trading online, and stressed that each type of investment has different goals from the other.
Advantages of trading in gold
The report indicated that investors resort to trading gold in the following cases:
- Speculation on the rise and fall of the price of gold.
- Make profits without owning and storing gold as a metal.
- Diversification of the investment portfolio.
- Hedging and fear of inflation.
Advantages of investing in gold
Investors who prefer to actually invest in gold usually resort to this for the following reasons:
- The investor's desire for the actual acquisition of gold bullion.
- Long-term investment or bequeathing wealth to children.
- Non-payment of taxes.
- Fear of inflation and keeping gold as a safe saving method.
- The desire to build a diversified portfolio.
Factors affecting the price of gold
Before you start investing in online gold trading through dedicated platforms, you should know what factors affect gold prices globally.
- The value of the dollar: It is natural that the rise or fall of the value of the dollar affects the price of gold, because gold is priced through the dollar, and there is a strong relationship between the two, any automatic increase in the value of the dollar has a negative impact on the value of gold.
- Global oil price: The price of oil is closely related to the price of gold because of the value of the dollar and its presence as an appraiser for both, and the rise in crude oil prices increases inflation, which is reflected in gold prices.
- Global stock markets: As gold is a safe haven for investors, any sudden decline in global financial markets often leads to investors fleeing and buying gold.
- Central banks: These institutions buy gold to regulate their reserves with the aim of stabilizing the value of their currency, which leads to higher gold prices.
It is natural that the rise or fall in the value of the dollar affects the price of gold, because gold is priced through the dollar (Shutterstock)
In another report published by Admiralmarkets, Brandi E. Blackler, she explained how gold can be traded online. The report stated that there is more than one way to trade gold through different platforms, the most important of which are the following:
Gold Futures Trading
Gold is traded at 100 ounces per contract, and a futures contract is an agreement between two parties to buy and deliver a commodity such as gold at a specific time in the future. Futures contracts are among the investments that are not preferred for beginners because they contain risks that may lead to the evaporation of your capital, while they may double it in a very short time if you can make gains.
For example, for every single point in which the index moves is equivalent to $100. If you buy gold futures and move $10 higher, it means a gain equivalent to $<>,<>, but if the index moves against your direction, it will be equivalent to losing $<>,<>.
- You can trade gold 24 hours a day.
- You can trade with higher leverage.
- Make significant gains in a short period of time.
- Futures contracts expire on certain dates that may make it impossible for a trader to hold a long-term position.
- Futures trading requires a significant amount of capital.
- The investor may suffer significant losses greater than the original capital if he uses leverage.
Gold Companies Shares
The most common type of investment for online gold trading is buying and selling shares of global mining companies.
Stock prices rise with the appreciation of the price of gold due to increased buying demand.
Stock prices often do not match the price of gold itself as a metal, due to the difficulties these companies may often experience in mining or losses for other technical reasons.
"Exchange Traded Funds" (ETFs) are a listed fund designed to track the price movement of an asset, index, or basket of stocks. ETFs are one of the most important ways to invest indirectly in gold.
- Diversify the investment portfolio across many financial instruments.
- Investing without retaining the metal itself.
- Pay relatively high commissions compared to other types of trading.
- Some gold ETFs suffer from a lack of liquidity, which affects the ability to buy and sell them.