Gold Trading — What You Need to Know
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It’s a new year, and a new decade, but for many, the journey towards financial wellness continues.
So as you look to broaden your horizons and improve your financial wellness, let’s take a closer look at gold and why it is a viable investment option.
What makes gold valuable?
Gold is regarded as one of the most precious metals in history. Unlike other elements, gold is practical to carry around and easy to verify.
Additionally, gold is not widely available or easily accessible. It may not be rare in nature, but it is difficult to extract. This is another reason why it is highly coveted by many cultures across the world.
Compared to other metals like silver, gold is relatively chemically unreactive, which means that it retains its lustre even over a long period of time. And let’s face it; its distinct colour makes it beautiful and desirable.
Historically, currencies were backed by gold in what is called the gold standard. This meant that countries like Great Britain and the United States had paper money corresponding to a certain amount of gold, before eventually deciding to stop honouring the gold standard.
However, this noticeable shift didn’t impact gold’s value.
Why is there a demand for gold?
So why does the demand for gold still exist if the gold standard is no more?
Well, for one, the jewellery industry is still thriving. It accounts for around half of the global demand for the metal.. It’s also widely used in different industries, such as electronics, dentistry, and aerospace.
On top of that, investors are responsible for the continuous demand for gold. Gold is thought of as a ‘safe haven’ – a type of investment that is expected to retain or increase its value despite economic downturns. Just recently, escalating tensions between the US and Iran led to the highest recorded price of gold since 2013. And if things turn from bad to worse, then global economies will likely suffer, and investors are preparing for that by holding on to their relatively steady gold investment.
Why should I trade gold and how do I begin?
There’s more to trading gold than just reacting to world events. Other than gold’s constant value, FXCM lists two compelling reasons to trade gold: its accessibility and liquidity. Digital marketplaces have made it more accessible for regular people to buy and sell gold through a number of methods. Gold is also recognised globally, making it a highly liquid asset.
For instance, if you own jewellery, bullion, or gold bars, they can easily be converted into cash. The Economic Times adds that you can also trade paper gold in the form of gold exchange-traded funds (ETFs), sovereign gold bonds, and even digital gold. Gold ETFs are the best option as they are a low-cost alternative to owning physical gold, and is closer to the actual price of gold. Of course, you will still need to work with a broker to facilitate the trade.
Overall, like all investments, it’s important you don’t put all your eggs in one basket. Even gold can has the potential to be volatile, so it’s best to diversify your portfolio, with around 10% of it in gold if at all possible.
