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Gold is one of the world’s oldest and most precious metals. It’s what we award athletes who finish first, it’s designed into the jewellery we give loved ones, and some cultures have even gone so far as to build entire temples out of it. But aesthetics aside, gold is – and has been for a long time – crucial to the world’s economy.
Gold was first used as currency since the Byzantine Empire (395–1453AD), most notably the pure gold coin the Byzantine solidus.
More recently, gold was used as the world reserve currency up until 1971, when the US abandoned the gold standard. Before then, the value of a country’s currency was directly linked to the value of gold.
Rather, paper money had to be backed up by an equal amount of gold in a country’s reserve, which in most cases was gold bullion.
So is gold a commodity? A currency? Or a combination of the two?
The free market system we currently trade in (post-gold standard) allows gold to act very similarly to a currency.
Gold is not often used for direct payments; however, it is highly liquid and can be converted to cash in most currencies very simply.
That said, gold is, first and foremost, a commodity often grouped with other precious metals, such as silver, platinum and palladium.
Gold is a global commodity and can be traded in many currencies. However, the typical market quote is to price gold in "US dollars per troy ounce".
This relationship to the US dollar is one of many important factors that influence the price of gold, which we’ll now take a look at.
Unlike oil or coffee, for example, gold isn't consumed (although sometimes chefs get bored with edible ingredients and add them in). Also, as it is virtually indestructible, most of the gold that hase ever been mined is still around to this day. As such, the price of gold is moved more by a combination of supply and demand, and investor behavious.
Nowadays, when other investments seem too risky, gold is often seen as a "safe haven".
It generally performs well during global crises such as wars, terrorist attackes, and pandemics, to name but a few, as it is seen as an attractive hedge.
For example, if the US central bank, the Federal Reserve, decided to cut interest rates, this would usually weaken the US dollar and lift the price of gold.
It's therefore important when trading gold to keep an eye out for any major economic announcements that could impact inflation - and in turn gold - such as unemployment figures, interest rates, price changes in energy or food, and even natural disasters.
Learn more about the similarities and differences between futures and options.
You can also trade CFDs on a wide range of gold stocks within the share market, instead of investing in physical gold. This is an effective way to gain exposure to the underlying asset without physically owning the gold product. At CMC Markets, we offer over 8000 stocks and ETFs to trade on a worldwide level on our online trading platform.
Traders should open a position based on whether they think the share price of the gold company will rise or fall, and subsequently profit or lose based on which direction the price movement heads. Below is a list of some of the largest gold mining stocks right now.
An exchange traded fund* (ETF) is a type of investment fund that holds a collection of underlying assets, including shares of a company, to give an investor exposure to this asset, which in this case would be the commodity. Gold ETF trading is a low-cost investment choice that can be bought and sold like any other share in the stock market.
ETFs give traders the opportunity to diversify their portfolio by investing in a number of gold shares, rather than a singular one. Below is a list of the main gold ETF competitors to trade on our platform.
Over many centuries, the gold trade has seen it all. Empires have risen and fallen, economies have prospered and crashed and though demand has waxed and waned, there has always been a market for gold. This is why many see it as a safe haven investment. Still, like every other investment, its prices will fluctuate over time – which creates opportunities and risks for traders.
However, gold is just one of a number of options open to commodities traders, with many preferring to focus on oil, grains or coffee. To find out more visit CMC’s Commodities Market.
Read more on gold as an investment.
Investing in CMC Markets derivative products carries significant risks and is not suitable for all investors. You could lose more than your deposits. You do not own, or have any interest in, the underlying assets. We recommend that you seek independent advice and ensure you fully understand the risks involved before trading. Spreads may widen dependent on liquidity and market volatility. The information on this website is prepared without considering your objectives, financial situation or needs. Consequently, you should consider the information in light of your objectives, financial situation and needs. CMC Markets NZ Limited Company Registration Number 1705324 (the product issuer) provides the financial products and/or services. It's important for you to consider the relevant Product Disclosure Statement ('PDS') and any other relevant CMC Markets Documents before you decide whether or not to acquire any of the financial products. Our Financial Services Guide contains details of our fees and charges. All of these documents are available at cmcmarkets.co.nz or you can call us on 0800 26 26 27.
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