Another enduringly popular commodity is gold, which has long been considered a store of wealth and has held a special allure for many of us – as the Californian gold rush back in the 1840s would undoubtedly attest. Nowadays it’s traded like any other financial instrument and is still an important commodity to many traders around the world.
Traditionally, in times of trouble and market volatility, gold is perceived as a 'safe haven' – somewhere for investors to store their money away from other riskier assets. Although the yellow metal can in theory be traded in many currencies, the typical market quote is to price gold in dollars, usually as 'dollars per troy ounce'. This relationship to the US dollar is an important one and is another factor that will have an influence on the price of gold. If the dollar becomes more attractive to investors and starts to rise, the price of gold will usually drop. In recent years, some people have seen the US dollar as a safe haven for their money and that has reduced the appeal of gold.
This is another aspect to weigh up when trading gold: the impact any moves in the dollar will have on the price of gold. For example, if the US central bank, the Federal Reserve, decided to cut interest rates, this would normally weaken the US dollar and lift the price of gold. As with oil, because gold is such a global commodity it pays to keep a watchful eye on the major economic announcements such as interest rates and unemployment figures, which are released on a regular basis.
The energy markets are also popular among commodity traders. The advent of renewable energy has generated added interest for commodities such as national gas, heating oil and gasoline. As with the oil markets, world events and politics can have an impact on the energy markets, so it’s wise to keep an eye on news and economic releases.
One way to get a feel for commodity markets is to watch their moves over a period of time so you can experience the sort of things that happen and understand what makes prices change. And when you do start trading, it’s always sensible to start with small amounts and use risk management orders.