Gold has been a popular asset for years now, after it experienced a major surge in popularity as an investment asset during the last half-century. The precious metal is under the influence of many factors which cause regular price swings, and the right strategy can detect multiple trading signals and profitable opportunities. This article will go into detail about the price of gold, what affects it, and how to invest in this commodity in a few easy steps.
In its natural form, gold is a precious yellow metal with high density and durability. Its chemical element code is “AU”. The majority of the produced precious metal is mined, and major countries for mine production of gold are China, Australia, Russia, the United States, Canada, Indonesia and Peru.
Gold has a versatile application in the real-life. Indeed, the yellow metal has been used for coins and as a monetary standard throughout history. It is also used as bullion for electroplating, jewellery, electrical connectors, computer chips, industrial catalysts, etc.
After World War II, the Bretton Woods system was established as a new international system that should support the economic developments and economic growth in the post-war era. This system fixed the dollar to gold, at a parity of $35 per ounce. The Bretton Woods system collapsed in 1971, and from then onwards gold started trading freely on markets worldwide.
The gold price today is primarily quoted in US dollars per ounce of gold with the relevant ISO codes: XAU for gold and USD for the US dollar. Therefore, the XAUUSD pair shows the amount of US dollars needed to buy a troy ounce of the precious metal.
Gold prices have generally moved upward since the 1970s and managed to record multifold price increase. However, the most interesting aspects of gold price movements are its price swings.
After the collapse of the Bretton Woods system, gold has experienced a significant appreciation in its value. By the end of 1971, the price of the commodity was around $43, and during the last half a century, it appreciated more than 40 times. Consequently, the gold price history displays that its value moved in an overall upward trend. However, the monthly gold price chart displays that this metal also moved in a broad range for nearly two decades from 1983 until the end of 2005. The sideways movement was interrupted with many price swings of different sizes when the value of gold was declining or appreciating.
The first significant multiyear downtrend in gold price was recorded from 1974 to mid-1976, when gold lost more than 40% of its value. But prices bounced back and appreciated more than 500% until 1980, before starting a new reversal with multiple price swings. After the 1980 high price, gold value hit a decade low price when it declined to $255 in 1999. Afterwards, the value of gold moved in an upward trajectory for more than a decade and hit a new high closing price of $1,823 per troy ounce in 2011 before it started a new reversal. The gold hit an all-time high price of $2,073 per troy in the first half of August.
The daily chart indicates that the price of gold today moves in a choppy manner with regular price swings. The size and the length of price swings may differ, but the value generally fluctuates up to 10% in a couple of days to a few weeks. Although more sizable fluctuations are noted throughout the day, gold price commonly changes by less than 3%. However, the daily change and the size of these swings depend on changes in relevant factors.
The price of gold is tracked by many market participants globally because it represents a popular investment asset class, while different economic and political factors might influence its value. Some of the major factors that should be considered before you invest in gold are:
Finally, it may be interesting to note that XAUUSD price has an inverse relationship with the movements in stocks and bonds prices
The XAUUSD chart displays a couple of major peaks in value, while a closer look at lower time frames illustrates multiple price swings which occur regularly. Note that in the last two decades, XAUUSD price has appreciated by more than 600%.
Multiple reasons go in favour of investing in gold or gold-related instruments. Important reasons that support the idea of trading this asset are:
The financial markets have developed many instruments that allow investors and traders to invest in gold and profit from changes in its price. Apart from the physical purchase of the metal, investors can now buy gold-related stocks, futures, ETFs, options, or CFDs.
Gold stocks are stocks from companies associated with gold producing, mining, streaming and royalty companies. The difficulty when buying gold stocks is that you need to choose the right company to invest in. Otherwise, the price movement may outperform the changes in stock value. So, aside from analysing price movements in the gold price, you also need to pay attention to the company-specific factors, which requires additional analysis.
Trading gold ETF is another option for investors to add the precious asset to their portfolio. A gold Exchange Traded Fund is a fund that invests in gold, and it is traded in a similar manner like any other stock on the stock exchange. The downside when investing in the metal through an ETF is that you will have account costs, annual service costs and other fees.
Gold options give the holder a right to buy or sell gold at a pre-specified price and date. Traders need to understand the types of options and their features, which can be complex for beginners. Moreover, the right to buy or sell gold requires to pay a premium.
You can also buy gold in its physical form, through bullion or coins. Bullions may come as a bar or in a round shape, with the stamped weight and fineness of gold. The downside to investing in physical yellow metal is that you need to store your bullions and coins in a safe place. Moreover, it is rather difficult to chip off a piece of your bullion to sell a portion of the gold you own, making it a bit illiquid form compared to instruments traded on the commodities markets.
Contracts for difference, or CFDs, are a simple derivative instrument that allows traders to invest without holding any physical form of the metal. Gold CFD gives traders many advantages compared with some of the other investment methods. They allow traders to access the asset at lower costs, higher liquidity and faster execution Note that ZFX offers competitive trading fees for CFDs and other assets.
An easy way to start XAUUSD trading is by using an online broker, such as ZFX. ZFX offers regulated and efficient trading conditions. For instance, it offers the popular MT4 platform, many free trading tools, educational materials, a wide range of assets and more. Indeed, with ZFX you can trade stocks, indices, commodities and forex pairs.
With ZFX, you can start speculating on the asset’s price movements in a few easy steps.
The first step covers account registration with ZFX, and this is fairly easy. You start by going to the ZFX website and click on “Open an account”.
For the next step, fill in the requested information and press “Next”.
Traders can deposit funds in their accounts swiftly and easily following the instructions. They need to log in to their account and navigate to the “Deposit” section. You can deposit funds via Bank Transfer or Credit Cards.
You’ll also need to provide valid documents as part of the verification process. You need to upload a national ID, passport, or driver’s license to verify your account. Traders will be asked to verify their bank account by uploading a copy of their bank statement or specific pages from their bank book.
In this step, you open and close your trading orders based on your analysis and trading strategies. First, you will download the MT4 trading platform through ZFX primary website. After you download the platform, you can now log in with your credentials by going to the “accounts” section.
To speculate on gold price movements, select the XAUUSD from the Market Watch section, and a window with a graph and other elements will open to the right. To trade XAUUSD, you need to specify the volume, type of order, and if you want, you can set stop loss or take profit. ZFX also allows traders to open a short position with the asset.
Investors need to know the characteristics of different gold-related trading and investment instruments and how they can make profits with the desired instrument. Hence, before trading the precious metal, traders should consider the following:
Forecasting gold prices is challenging, considering the number of factors that directly and indirectly influence its value. However, market participants provide estimates about how the gold value will move in the future, and the possible levels we can expect.
The gold forecast shows a long-term bullish sentiment, while in the short-term, it is anticipated that this commodity will continue to experience price swings. Nevertheless, the XAUUSD prediction is that the pair might appreciate above $2,000, and even $3,000 per troy ounce by 2023. Some estimates even predict that gold could record a historically high price of $4,000 in the next few years.
Gold is a popular trading asset that attracts both long-term investors and short-term traders. But its versatile application as a commodity and an investment asset means that many factors can influence its value. This said, overall the gold price has recorded growth in the last 50 years, and experts and analysts anticipate that this trend will continue in the future.
If you wish to invest in XAUUSD today, you can do so through ZFX in a few simple steps. Refer to the tutorial in this article to place your first trade in gold today.