Gold always represented a safe haven in terms of investment. It has seen ups and downs and in this very moment is an excellent investment opportunity with its prices estimated to exceed $2000 in a year to come. Here are the things you always wanted to know regarding gold trading, from its history to current trading trends.
Table of Contents
The Critical Events in Gold Trading History
After World War II, the US found itself effectively leading a Western world whose economy had been devastated. The world needs to reinvent the system and gold helped a lot. The Bretton Woods agreements were signed in 1944. With this new agreement, only the dollar had a value in gold. Other currencies had a defined dollar value.
This system ended in 1971 under Richard Nixon, who decided to suspend the dollar’s convertibility into gold. From this point on, the price of gold can fluctuate freely against the dollar.
Since then, it will always be dependent on various political, geopolitical or economic events. A safe haven in times of a crisis will gradually see its value increase over the years. A true barometer of economic and geopolitical crises heads to the top when the world order is undermined. Invasion of Afghanistan in 1979, the Gulf War in 1990, September 11, 2001, or even the economic crisis of 2008-2012.
Why Do Central Banks Hold Gold Reserves?
Central banks manage countries’ foreign reserves. Gold allows them to diversify their reserves and reassure investors because gold is an insurance against currency devaluation and the risk of recession.
Over the past decade, their demand for gold has increased considerably. The various monetary institutions have never bought so much gold as in recent years. According to IMF data, their world gold reserves reached 34,000 tonnes.
For some states, one might think that buying gold is also akin to a more political approach in an attempt to de-dollarize; most of the world’s currency reserves are made up of dollars. It’s particularly the case with China, which has experienced a real gold-buying fever since 2018.
What Affects the Price of Gold
Several key factors affect the price of gold. The first is that of interest rates. When these are rising, gold tends to fall as investors turn to government bonds and other asset classes whose returns remain tied to interest rates. The most important interest rate is set by the Federal Reserve, the US central bank, which is the key arbiter of world markets.
Geopolitical events also play an important role in trading gold. In times of international conflict, gold generally rises as investors buy the metal to protect themselves from uncertainties.
The levels of supply and demand are also to be monitored. Like any commodity, gold production rises and falls over time, as does the level of demand. The festive season in India and China is often a key time when the demand for gold increases as people traditionally trade gold jewellery.
Industrial production shifts gold prices slightly, so as it increases, demand for gold increases and vice versa.
How to Buy Gold?
Gold, a thousand-year-old investment that does not pay off immediately but has proven its worth over time, has continued to attract worried investors looking to protect themselves against economic risks.
Therefore, many of them, imitate central banks and buy physical gold: gold coins, gold bars and ingots, and gold jewellery. There are specialized websites and platforms on the Internet to carry out these transactions, and it is also possible to contact a bank branch.
Some prefer to avoid the constraints linked to physical gold possession and are content to bet on the price of gold. The derivatives (warrants or turbos), trackers or CFD products, soil are the easiest way to trade up or down – as long as you control the risks and choose a broker that caps leverage!
The CFDs system for investing in gold is very simple: you buy a CFD contract on gold and sell it as soon as you want. With leverage, you will be able to profit from the variations of gold with a minimal budget. As with other financial products, we have prepared a concrete example for you to trade gold online. You can now start trading gold via CFDs by registering with a CFD broker.