Gold is a highly liquid but scarce asset, known as the most popular commodity and a safe haven for traders.

For centuries, from being used as jewelry to high demand in the field of electronic component technology, gold has always had trading properties due to its unique physical properties.

In this article, we will introduce traders to this precious metal, which has been popular worldwide for many years, explain how the gold market operates, and how traders can invest and trade this commodity.

Today, gold is used for jewelry, investment, and even in industries such as medicine and electronics. However, precious metals have long been used as currency.

What makes gold so special? Think about why silver or palladium are not the most popular precious metals?

Gold has always been regarded as attractive in terms of color and brightness (unique luster), and is almost indestructible.

Gold is scarce enough to prevent producers from flooding the market, leading to a decrease in its value. On the other hand, it is abundant enough to maintain market liquidity.

Human beings also have an emotional connection with gold, and in many cultures today, gold still plays a very important role.

What is gold trading?

Gold is one of the oldest and most trustworthy forms of currency in the world. For traders, the intrinsic value or "safe haven" attribute of gold makes it a popular investment and a good way to diversify investment portfolios.

There are two main ways to invest in gold. The first type is to purchase physical gold or stocks of mutual funds or exchange traded funds that follow the real-time price fluctuations of gold.

The second method is to use the price fluctuations in the commodity trading market to trade gold related derivatives, such as futures, contracts for differences, options, and so on. The two most popular gold derivatives are gold spread contracts and gold futures.

How does the gold market operate?

Gold is mainly traded on over-the-counter (OTC) and exchanges. London is the center of the global over-the-counter trading market, where market participants trade directly. Although this market has less regulation and higher flexibility, the risk to trading parties is also high.

Exchanges are regulated platforms and trading is centralized. Exchanges usually provide standardized contracts, which are not suitable for every trader as they limit their flexibility.

Apart from London, the other two major gold trading centers are New York City and Shanghai. The COMEX exchange is located in New York City, while the Shanghai Gold Exchange is located in Shanghai.

How do beginners engage in gold trading?

For junior traders who wish to buy and sell gold as a regular asset in their investment portfolio, different gold trading strategies and assets will be required. Read this section to understand the basic steps to start trading gold.

Find suitable brokers - most trading platforms can conduct gold trading. Axi provides various trading tools, which means traders can trade currencies, metals, stocks, cryptocurrencies, and commodities in a one-stop shop. Simply register for an online trading account. If traders wish to place their gold trading in a separate trading account, they can choose to create a sub account that can only handle gold trading.

Choose the gold trading method you want - before traders start trading gold, they must understand the differences between the two gold products offered as spread contracts. Spot price difference contracts usually have a lower interest margin than futures price difference contracts, but there is a daily swap fee charged. Futures contracts for price differences have a higher interest margin than spot contracts for price differences, but do not charge daily swap fees (on the contrary, futures contracts will be extended after expiration).

Testing trading strategies by trading gold - traders may prefer to conduct tests on simulated accounts. This is an important step as it will allow them to gain a deeper understanding of whether their strategy is applicable to gold. If they plan to conduct fundamental analysis, they should pay attention to news and events related to gold and understand the interrelationships between precious metals and other asset classes.

Start your first gold transaction - once traders are ready, install the Axi MT4 platform, and they can find spot products under the "XAU/USD" (or other currency pair XAU/xxx) code and futures spread contracts under the "Gold. fs" code.

Investment in gold has existed from ancient times to the present. The limited supply and continuous demand make it the world's largest trading precious metal

Michael Kuchar - Chief Executive Officer, Currency and Gold Trading Strategist, Trading Beasts

Different ways of trading gold

Explore different ways for traders to enter the gold market, whether they are interested in trading precious metal commodities or investing.

Contract for Difference (CFD)

Contract for Difference (CFD) trading involves speculating on the rise or fall of prices in global financial markets such as indices, commodities, stocks, or cryptocurrencies. Contract for Difference (CFD) trading is a contract between investors and brokers, settled based on the difference in value of financial assets or instruments during the contract period.

When closing a contract (transaction), if the price is higher than the opening price, there will be a positive return for the buyer. The seller must pay the buyer the price difference, which will be the buyer's profit. On the contrary, if the transaction price is lower than the opening price, the buyer will suffer losses.

Recommended reading: What is CFD?

gold futures

Futures contracts are contracts that purchase or sell a specific asset at a predetermined price at a specific time in the future. Futures are particularly popular among short-term traders who hope to speculate on the direction of gold prices. Futures can also be used for hedging purposes. For example, investors holding physical gold do not want to sell this gold frequently because transaction costs will rapidly increase. However, investors can short gold to profit from the decline while retaining their physical gold as a long-term investment.

Exchange Traded Funds (ETFs)

Exchange traded funds have experienced rapid growth in the past few years as they can invest in certain assets in a cost-effective manner. Gold exchange traded funds are suitable for investors who wish to invest in gold while maintaining low trading costs.

Different ways to invest in gold

Gold coin

Gold coins are still very popular, with the five most popular types being the Krugman (South Africa), American Eagle (United States), Canadian Maple Leaf (Canada), Australian nuggets (Australia), and Chinese Panda (China). The disadvantage is that these coins are always sold at high prices, and investors need to store them appropriately, which may lead to increased costs (such as purchasing a safe or renting a safe at the bank).

Gold bar

Gold bars come in various sizes. The premium is slightly lower, and the gold bar market has stronger liquidity than the gold coin market.

Gold mine stocks

Gold mining stocks can be traded or invested through individual stocks, CFDs that make up the investment portfolio of gold mining enterprises, or exchange traded funds (ETFs).

What affects the price of gold?

There are multiple factors that can affect the price of gold, and the main factors are as follows:

The Development of Geopolitics

Precious metals are often seen as a safe haven, and prices often rise during periods of geopolitical tension.

Worries about inflation

When investors are concerned about rising inflation, gold generally appreciates as holding cash becomes increasingly unattractive.

monetary policy

Gold and the US dollar have the opposite relationship. Therefore, expectations of an increase in US interest rates will stimulate the US dollar and put pressure on gold. On the other hand, if interest rates in the United States are expected to decrease, the US dollar may decline and gold prices may rebound.

Physical supply/demand

Although buying gold exchange traded funds (ETFs) or trading gold spread contracts (CFDs) and futures has become increasingly popular, physical gold is still used for the production of jewelry and investment (such as coins and bars). The demand for such products will also have an impact on the price of gold.

Advantages of Gold Trading

Discover the advantages and disadvantages of trading precious metals (a safe haven).

Gold has always been a good tool for hedging against inflation in history. Inflation is the number one natural enemy of investors. During turbulent times when the stock market is in trouble and cash loses value due to low interest rates, gold has become an attractive asset class for investors to allocate.

Although gold prices are volatile with occasional high fluctuations, the metal can maintain its value in the long run and is therefore considered a stable i