Out of all the types of precious metals traded online, gold is the most popular. Its durability, electrical conductivity and malleability make it a sought after material in a variety of industries, including jewelry. Unlike stock, gold prices are not affected as drastically when a crisis occurs in one or several countries. Because gold doesn’t react to market changes in the same way as other assets, investors choose gold as a safe way to diversify their investments.
If you are planning to participate in gold trading, here are ways to help you do it correctly.
Identify the type you want
Gold comes in many forms. You can buy it in bar or coin form. Exchange-traded funds and online gold shares are also available. If you are looking for an indirect way of trading gold, there is also the option of investing in miners and producers of precious metals.
As with any type of asset, each form has its own set of advantages and disadvantages. Some people prefer buying 1 kg gold bars. Although the gold trading market is considered liquid, it is difficult to find a buyer of an entire gold bar. Buying gold coins is a better option – you can sell coins per piece and they remain as legal tender.
Know what drives prices
People have been using and trading gold for thousands of years. The first known use of gold was in 560 BC when the Greek city of Lydia introduced the concept of using gold coins as a form of currency. Since the 1950s, it is believed that about 65 percent of all known gold ores have already been mined. Its scarcity makes it an attractive metal to trade. There are other factors that can affect the price of gold. These include the following:
A mix of these forces is constantly affecting the market prices. If you are interested in buying or selling gold, you need to be aware of these factors. Otherwise, you might end up losing money when you start trading.
Analyze the other players
Always remember that there are millions of traders at any given moment. The general sentiment of these traders can affect how the precious metal will perform in the market. You need to be aware and sensitive to these sentiments in order to trade effectively.
There are several types of players with varying interests. The gold bugs are one type. Sometimes referred to as long-term hoarders, gold bugs are in the game for the long run. As such, they are not as easily spooked by downtrends as short-terms players. By continuously buying gold, the long-term players keep the market liquid.
The gold trade also attracts institutions to participate in hedging activities. This involves buying and selling different types of currencies and bonds quickly. The activity is highly encouraged in markets where public participation levels are lower than expected.
Study the charts
Understand how gold has performed over the years. There are charts that can show you what the prices have been for the past 100 years or more. Studying these charts will give you a better idea of the metal’s prices throughout history and the expected trend. Trends have been known to continue for decades and more. Doing your research will let you know if it is a good time to buy or sell gold.
Select markets have a cycle. Understanding how cycles work can also help you out when making short- or long-term trades.
Choose your broker
If you wish to participate in trading but don’t know where to start, you can hire a gold trading broker to help you out. Brokers understand the market, the trends, and other market players. They also have the expertise and tools needed to make the right decisions. Plus, they can also make it easier for you to deposit and withdraw your money.