Gold is one of the most precious and commonly traded metals worldwide. Its appreciating value over the years makes it the perfect investment fit.
Gold is one of the most highly traded assets in the $1 billion commodity trading market.
For Gold, the market capitalization at $2.5 trillion, with an average appreciation in prices by 12% every year.
Let's take a look at how you can enter the Gold trading through Gold CFDs.
What is a Gold CFD?
Gold CFDs or Contract For Differences are a type of contract between the buyer (you) and the seller (the broker) that provides you access to Gold without actually owning the underlying asset.
As part of the contract, the buyer pays the difference between the open and close price of the Gold CFD at the time of contract closure.
With Gold CFD, you can trade with leverage and take bigger market positions with smaller deposits, all the while making profits on the basis of the total trade value.
For example, let’s say you buy a Gold CFD worth $100 that enables you to trade Gold worth $1000. When the Gold prices increase by 10 percent and reach $1100, you make a profit of $100 by only investing $100 in the first place through Gold CFDs.
Factors affecting Gold CFD prices
- Inflation
Whenever inflation increases in a particular country, people lose faith in their own currency as its value depreciates. Hence, they start investing in other products like Gold due to its ease of exchange power. The increase in Gold’s demand when the inflation rate is also high leads to an increase in the prices of Gold, appreciating the Gold CFD prices.
On the other hand, when countries go through deflationary pressures, people hold onto the currency and refrain from investing in Gold, which leads to a decrease in Gold prices, depreciating the Gold CFDs in return. - Gold’s global supply and demand
The demand for Gold has been never ending for centuries now. People do not just buy Gold due to its use as a piece of jewellery, but as a solid investment that appreciates over time.
Whenever Gold’s demand exceeds its supply, the price of Gold increases, leading to an appreciation in the Gold CFD prices. On the contrary, at times, Gold also loses its value when its supply exceeds demand, leading to a drop in the Gold CFD prices. - The global economy
A strengthening of the world economy appreciates the value of Gold and Gold CFDs. This is because when the world economy is stable, people tend to increase their investments and diversify their portfolios. However, in situations of economic turmoil, like during a war, recession, or pandemic, the weakening in the overall world economy leads to a fall in the Gold and Gold CFD prices. - Currency fluctuations
Major currencies like USD have an inverse relationship with Gold and Gold CFD prices as USD is the world’s reserve currency. Any drop in the USD in the forex market leads to an increase in the prices of Gold CFDs because investors shift to trading Gold for the time being, and decrease their investments in USD.
An increase in USD leads the investors into purchasing more of the USD and decreases their investments in Gold, leading to a decrease in the Gold CFD prices.
Benefits of trading Gold CFDs
No storage or transportation costs
Gold CFDs allow you to speculate Gold prices without actually owning them. Hence, you are not required to store or transport physical Gold when you buy a Gold CFD as it is provided to you as an electronic contract only.
Diversifies investor portfolio
Gold CFDs enable traders to expose their portfolios to the high-value yellow metal. Since it is a safe-haven asset, Gold is known to be a protecting asset during times of crises and a hedge against inflation due to its liquidity and constantly appreciating prices. Adding Gold into your investment portfolio diversifies it and helps you capture returns in both falling and rising markets with an overall reduction in the risk.
Leverage trading
With Gold CFDs, you can enjoy trading with leverage, which enables you to take bigger positions in the market than you can actually afford. This means when you trade with a leverage of, let us say, 50:1, it lets you buy positions worth $50 for every $1 in your account. This makes it possible for you to take significantly higher positions than you would be able to otherwise.
High liquidity and flexibility
Gold CFDs are highly liquid and flexible products that enable traders to buy or sell the contract at any point in time, without any hassle. This is why Gold CFDs are so convenient to trade. As they do not come with an expiry date, you can hold onto them for as long as you want and only exit the trade when you wish to, without any obligation.
How to trade Gold CFDs effectively
- Identify a CFD broker who offers Gold as a product with competitive rates and spreads
- Open a trading account with a broker who compliments your trading goals, objectives, strategies and overall trading style
- Start trading with a demo account to understand how the market works, how to place orders and the different tools and techniques that the platform has to offer
- Pick a trading strategy that will help you make successful Gold CFD trades
- Have your trading budget and fund your account accordingly
- Choose a position size that suits your long term objectives
- Open a long or short position according to the market analysis
- Monitor your trade as the Gold prices fluctuate
- Exit the trade when you feel the ideal exit level has occurred
Trade the ever-profiting yellow metal through CFDs
Gold CFD trading has a number of advantages like leverage, ease of execution, low costs and long and short opportunities in the market.
You can trade Gold CFDs on Blueberry and enjoy competitive spread as well as transparent trade environments. Sign up for a live trading account or try a risk-free demo account on Blueberry.
