Gold has been used as a form of payment since early civilisations, making it one of the oldest currencies in the world. It has been recognised for centuries as a store of value, meaning it can hold its worth over a long period of time and doesn’t depreciate. It’s one of the reasons why many regard it as a sign of wealth.
Trading in gold is the buying and selling of gold in the form of physical gold or gold derivatives. This metal is highly malleable and doesn't degrade, which is why it's considered precious, making it one of the most widely traded raw materials globally today. Due to its popularity and high value, the price of gold in commodity markets fluctuates more than others. Many online traders see these price movements as great trading opportunities to acquire more potential gains.
In this blog, we’ll go over what gold trading is, what influences its price, and how to trade it online alongside other assets.
What is gold trading?
Gold trading refers to speculating on gold's price to make a potential profit, and there are several ways you can do this online. On Deriv, gold traders use CFDs and options.
Gold CFDs and options allow you to predict the metal’s price movements without owning or buying it. These trade types give you more flexibility since you don't have to adhere to the typical buy low, sell high approach, letting you potentially profit from rising and falling markets. Regardless of your position, your goal is to predict the market's future direction correctly.
With CFDs, you can go long or short and keep your trade open as long as you want if you have sufficient capital to maintain it. The more the market moves in your favour throughout your trade, the greater your potential gains. However, the more it moves against you, the more losses you'll incur.
Whereas with options, you predict price movements within a set timeframe. Plus, you know beforehand how much your potential payout is and your loss is limited to your stake.
Factors affecting gold prices
As with any other asset, gold's price is influenced by both supply and demand.If there is too much supply in the market and not enough demand, gold prices decline. However, gold prices rise if the demand is strong and the supply is low.
A number of factors influence gold's supply and demand, resulting in significant price fluctuations. Here are 3 of them.
Value of the US dollar
Gold is a dollar-denominated metal, meaning its price is pegged to the value of the US dollar, often referenced as XAUUSD in trading. XAUUSD is a trading symbol used in financial markets to represent the exchange rate between gold (XAU) and the United States Dollar (USD). It essentially indicates how many US dollars are needed to purchase one ounce of gold. Traders and investors use this symbol to speculate on the price movements of gold in relation to the US dollar.
This influence dramatically impacts gold's price. Whenever the value of the dollar drops, people turn to other investments to preserve their wealth, and gold is seen as the best option due to its intrinsic value. Additionally, a declining dollar increases the purchasing power of other currencies, potentially boosting demand for gold and causing its price to rise.
Rising inflation
Inflation occurs when a particular currency's purchasing power weakens. As a result, people seek safe-haven assets. A safe-haven asset is an investment expected to retain or increase in value during market volatility.
Gold is generally considered a safe-haven asset. Although it's more volatile than other assets in the commodity market, its volatility is still very low compared to other markets. That's why many use it to hedge against inflation to reduce their exposure to losses.
Scarcity in production
Mining and recycling are the two significant sources of gold production. However, it's expected to deplete over time due to the finite nature of gold and the fact that most of the world's gold reserves have already been mined.
To meet the demand, what's currently on the market is being recycled, and more companies are exploring advanced mining technologies to locate gold deposits. However, any new discovery will spike gold's price in the short term since everyone wants to get their hands on it. Following the law of supply and demand, if the supply cannot keep up with the demand, its price will continue to rise.
Platforms to trade gold on Deriv
Trading gold is available on a number of platforms on Deriv.
You can trade gold with CFDs on Deriv MT5 and Deriv X. Deriv MT5 is Deriv's version of the popular CFD trading platform that is equipped with trading tools and plugins, including analytical objects, technical indicators, and more. Since Deriv X is a customisable trading platform that allows you to personalise your workspace, it is packed with advanced features and designed to fit your trading style.
When it comes to trading gold with options, you can choose Deriv Trader and Deriv Bot. Deriv Trader offers flexible trade durations, and you can open positions with stakes as low as 0.50 USD. Now, if it’s automated trading you prefer, Deriv Bot is the trading platform to use, as it allows you to build your trading bot in 5 steps without any coding skills needed.
Practice trading gold risk-free! Sign up for a free demo account that’s preloaded with 10,000 USD virtual money and available for any of the platforms mentioned above. As soon as you feel confident about your trades, you can switch to a real account right away.
Disclaimer:
Options trading on commodities on Deriv Trader is not available for clients residing within the EU.
Trading is risky. Past performance is not indicative of future results. It is recommended to do your own research prior to making any trading decisions.
Deriv X is not available for clients residing within the EU.
