Differences between Investing vs Trading
Differences between Investing vs Trading
Gold has been popular as a commodity for many years. This is largely due to its relative lack of price volatility, high level of liquidity and the perception of gold as being a proven store of value.
Unlike most other commodities, supply and demand isn’t the biggest driver in the gold price. Once gold has been mined, it isn’t going to disappear and little of it is consumed, so the amount of metal in the world continues to climb. Many societies throughout human history have turned to gold as the ideal metal for producing coins, although gold coins are rare in modern times.
The gold standard has played a huge role in monetary systems over the years, with many countries pegging their currencies against the value of this metal. Numerous nations have also stored vast quantities of the precious metal, as a way of hedging against possible rises in inflation or currency devaluation. All of these factors mean that the price of gold is one of the most keenly observed figures in the financial markets.
Gold and other commodities
The prices of commodities such as gold, oil,oil brent, natgas, silver, and platinum are often seen as a barometer of economic activity. When the economy is doing well, commodities tend to rise in value, while weak economic conditions can lead to a decline in prices. However, there is also a strong relationship between the prices of different commodities. For example, gold and silver are both considered safe-haven assets, and so their prices tend to move in the same direction. Similarly, crude oil and natgas are both essential inputs for industry, so their prices can also be correlated.
Platinum and palladium, on the other hand, are used in jewelry and vehicle manufacturing respectively, so their prices may not always move in tandem. Understanding the relationships between commodities can help investors to make more informed decisions about where to allocate their capital.
The price of gold is generally steady, which is why it’s so widely used as a safe haven and to diversify investments. Yet, it can also suffer troughs and peaks, just like any other kind of investment. In many cases, the factors that affect the value of gold are different from those that influence stocks and other commodities, giving it an important role to play in diversification strategies.
One of the interesting aspects of the gold price is that it often rises in times of economic turmoil, as more people turn to what they see as a safe, tangible type of investment. This helps to explain sharp increases such as that seen in 1980 when military conflict in Afghanistan followed on from a period of inflation and other negative factors.
About 2,500 tonnes of gold are produced every year, but the amount of the metal mined doesn’t have a huge impact on the price. Instead, this largely comes down to market sentiment and the underlying economic situation.
Gold bullion bars and coins are the easiest type of investment in this metal to understand. They can be purchased simply online and the investor doesn’t even need to physically store them.
Some of the largest exchange-traded funds in the world invest in gold. While this may be seen as a more convenient way of investing in the metal, it also introduces new risks that turn this into a more complex way of putting trading gold.
Gold futures and options can be traded online, giving another convenient method of investing. These instruments are based on the future gold price, and are often used for hedging purposes.
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* The spreads provided are a reflection of the time-weighted average. Though Skilling attempts to provide competitive spreads during all trading hours, clients should note that these may vary and are susceptible to underlying market conditions. The above is provided for indicative purposes only. Clients are advised to check important news announcements on our Economic Calendar, which may result in the widening of spreads, amongst other instances.
The above spreads are applicable under normal trading conditions. Skilling has the right to amend the above spreads according to market conditions as per the 'Terms and Conditions'.
What are the differences between gold and silver?
Gold and silver are two of the world's most traded metals, but understanding their differences is a complex and ever-evolving task. Gold is often seen as a safe investment, since its value usually remains high even when other markets fluctuate. Conversely, silver can be more volatile due to its many industrial uses, so trading in it with CFDs carries more risk than investing in gold.
Nevertheless, some precious metal traders still find advantages to trading in silver over gold: the demand for industrial silver can lead to prices fluctuating which presents opportunities for savvy investors. Ultimately, differences between gold and silver depend largely on their respective market conditions; whilst one might gain at once time, the other could gain significantly at another.
How much gold is there available?
When it comes to gold resources, the amount available in the world today can vary widely. Estimates range from 165,000 tons to over 2 million tons, accounting for gold that is both accessible and inaccessible. What is certain is that gold continues to be a valuable asset and its worth fluctuates with market forces. Mining and gold prospecting remain very lucrative endeavors as a result of gold's inherent value.
In fact, gold has been used since ancient times as currency and still holds some significance in modern economies with countries like China leading the charge. Though gold may not be mined and traded as much as other commodities like oil or wheat, what gold there is available remains significant both economically and culturally worldwide.
How to trade gold?
Those wanting to trade gold have a few options; you could buy physical gold such as coins and bars, use futures and options, or opt for trading Contracts For Differences (CFDs). CFDs are essentially an agreement between two parties which stipulate how much money will be exchanged depending on how the price of an asset (in this case gold) changes.
By using CFDs when trading gold, you’ll benefit from the ability to leverage your position – meaning that you can open a larger position than with just your capital alone - but it’s worth noting that the higher risk associated requires careful consideration. That said, trading gold can be a great way to gain exposure to both upside potential and downside risk of owning physical gold at a fraction of the cost.
Why Trade [[data.name]]
Make the most of price fluctuations - no matter what direction the price swings and without the restrictions that come with owning the underlying asset.