Gold is one of the most widely traded raw materials around the world and certainly the most popular of the precious metals, for both its financial and cultural value.
Gold belongs to the commodities market, along with other precious metals including silver and platinum, all of which you are able to trade with a CMC Markets account. Investing in gold in the UK is one of the most popular forms of trading and traders have put this into practice for over one thousand years. The yellow metal comes in many forms, which includes gold bullions, gold coins and gold stocks to invest in the share market.
The price of gold can fluctuate depending on political, social and economic instability. It is sometimes referred to as a ‘safe haven’ by traders because its price is not always affected by governmental decisions or inflated by interest rates, in a dissimilar way to some shares in the stock market. On the contrary, gold can act as a form of insurance as investors might reallocate assets into the gold market at unstable times. This could increases its value, since its demand might rise as traders might attempt to use it as a stock hedge.
So, why do some traders invest in gold? The answer to this question relates to gold hedging. Gold and other precious metals sometimes have a negative correlation with stocks and bonds, depending on the current stability of the economy. This reinforces the idea of precious metals as a safe haven for traders. When investors realise that their share positions are declining in value, some decide to take a chance on gold investment to balance out their potential losses. This is known as hedging in the gold market and it is a popular strategy amongst traders. This way, they are attempting to diversify their portfolio as they spread their bets across a range of markets, where the price of gold may increase in response to events that would typically cause the price of stocks and bonds to decrease.
Why not start trading with our demo account? Practising with virtual funds can help you to build a strong trading strategy before jumping deep into the gold market.
As a gold trader, there are several options for how to trade your asset. An easy option would be to buy and sell gold at its spot price. The spot price of gold reflects the exact current price that a buyer can purchase or sell the instrument for an immediate delivery. Alternatively, it is possible to trade gold through forward contracts, which is an agreement between parties to buy and sell an asset at a fixed price at a future date. Read more about forward trading here.
Popular methods to trade gold include spread betting and CFD trading, which CMC Markets offer across a range of markets including commodity trading.
Spread betting is one of our most popular products for trading on gold. It allows you to trade tax-free* whilst taking advantage of the market’s price movements without owning the physical asset. Spread betting enables you to open a position based on whether you believe the price of gold will rise or fall, and depending if the market moves in your favour or not, profits or losses will occur.
CFDs (contract for differences) are leveraged products that only require a trader to deposit a small percentage of the overall trade value, which is referred to as margin requirement. Unlike buying outright at the gold spot price, you do not own the underlying asset (similar to spread betting) but agree to exchange the difference in value from the time difference between opening and closing the position. Please note that where there is opportunity for profit, there is equal opportunity for losses.
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.
It is easy to get started trading on gold with CMC Markets; all you must do is follow these basic steps:
It is also possible to spread bet or trade CFDs on baskets of commodities for all precious metals, including gold, silver, platinum and palladium. Our commodity index gives you exposure to multiple commodities in one trade, which can be vital for diversifying your investment portfolio.
The most significant of the precious metals group, gold and silver are weighted to make up 70% of the index. Platinum and palladium make up the remaining 30% of the commodities basket. The indices work by tracking underlying prices of the commodities: if the price of gold, for example, increases within the index, then the overall value of the index will increase. In a similar manner, if the price of gold is to decrease, then the overall value of the index will decrease.
Trading the commodity indices market can be a good way for traders to invest in gold without placing all hopes and efforts in one single commodity. A disadvantage of gold trading is that the asset can be volatile in the short-term; by trading our Precious Metal Index, a trader does not place all of his hopes in the value of gold and instead may hope that the other commodities will bring up the overall value and price of the index.
*Tax treatment depends on your individual circumstances. Tax law can change or may differ in a jurisdiction other than the UK.
CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.