How to Trade Gold
Author: Getdealing
Gold is the most popular precious metal as an investment with investors having a variety of ways to gain exposure to this asset class ranging from bullion, coin or jewellery ownership right the way through to certificates, exchange traded funds, derivatives or shares. Capital Spreads offer exposure through spread betting with their Rolling Gold product. What makes it move? Like all investments the price of Gold is ultimately driven by supply and demand but unlike some other commodities most of the Gold that has ever been mined is still in existence and could potentially come onto the market if the price was attractive enough. This makes the demand side of the equation a greater factor than the supply side with sentiment being a much bigger driver of prices than the annual production of Gold. So what makes DEMAND for gold go up? Inflation. In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. The consequence of which is the loss of value of money..in effect your hard earned money will buy you less over time. Gold is the only asset class that has historically kept its buying power against a back drop of inflation. If Investors are concerned about inflation then they will buy Gold and when they are less worried about inflation they will sell gold. Safe Haven. Often in an economic crisis investors will sell risky asset classes (like equities) to buy safer asset classes such as government bonds and Gold. When the world looks like a risky place for investors we sometimes see what is known as a flight to quality and investors will scramble to put their money in an area that is considered safe in a time of uncertainty. USD Gold is priced in USDs and historically has an inverse relationship to the currency i.e. if the $ weakens then the gold price should rise as Investors try to protect themselves from a falling $ by buying Gold which should keep its relative purchasing power. In times of uncertainty this relationship can break down as both Gold and the $ are considered safe havens and investors may put money in both asset classes driving prices in both higher together. Seasonal Demand. The Indian wedding season runs from late September to December and wealthy Indian brides can be draped in as much as $1.5 mil of 24 carat gold. It is such an important part of the culture that if you cant afford any gold at your wedding then you simply dont get married! According to research by JP Morgan the Indian wedding season has boosted the price of Gold every year since 2002 with September showing the biggest average increase. Past performance is no guarantee of future movements but this seasonal demand does place a natural upward bias on the commodity during those months.About the Author:
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