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What Makes Gold Popular Amongst Commodity Traders?

Date Modified: 26/07/2023

Gold has historically been referred to as a ‘Safe Haven’ or ‘Store of Value’ asset which is a safe place for investors to ‘store’ their cash during times of instability or uncertainty.

Adored for thousands of years, Gold, a precious metal, has historically been used for industry, beauty, and most importantly, trade. This is true through today where it powers trade amongst individual traders, up to the world’s central banks.

With Gold being an internationally recognized commodity throughout history, it is no wonder that it has remained a popular commodity amongst traders until today.

Gold with Sell and Buy message.

Gold’s popularity amongst Traders

Gold’s popularity can be traced far back to ancient Egypt and beyond. Rare coins and jewelry have contained this precious metal, praised for its beauty and proof of sophisticated trade systems.

Up until the 1970’s the USD was on a system called the Gold Standard. This meant that each ounce of gold was given a USD value that was directly connected to the dollar. This meant that for every dollar that was in circulation, the US mint had to have stored gold in order to print it. If printing exceeded the amount of gold that was available, it would lead to inflation.

This system was abandoned in 1973 to make way for a more modern system of banking and trading. At this point, gold began having its independent valuation dictated by supply and demand, not governmental agencies.

Gold’s relation to global currencies

Gold is generally viewed as a store of value that has retained its worth over time, despite economic booms and busts. Larger economies like the US, UK, Euro zone, and China still hold large gold reserves, even though the commodity is not directly tied to the currency's value.

In order for these currencies to retain their value, central banks use the purchasing of gold as a tool to show they have a physical asset to justify the valuation of their money. For countries experiencing high inflation, they may purchase gold to hold in their reserves. This may instill confidence in investors and traders, proving that they have the ability to stabilize their currency. While this is just one of many tools that central banks use to maintain a stable currency, traders recognize this yellow metal as providing greater legitimacy to a country’s currency valuation.

How is Gold traded on the market?

Gold is traded on the Chicago Mercantile Exchange (CME), in USD and is measured in Troy ounces. This middle-aged era measurement translates one Troy ounce to 31.1034768 grams.

The CME allows you to trade Gold bullion futures contracts. Buying these directly from the CME may be accompanied by a commitment to purchasing, storing, and insuring the underlying asset, should you own the contract as it expires. Alternatively, traders can buy or sell Gold contracts CFDs, exposing them to the volatility of the commodity without requiring them to purchase the underlying assets.

CFD contracts can be opened against the metal’s current spot price, allowing traders to gain exposure to this metal’s volatility and risk without buying the underlying asset.

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Gold FAQ

Gold is a commodity subgroup and is one of the world's most traded precious metals. Other popular precious metals include silver, copper and platinum. Gold’s price is quoted per troy ounce (oz t), in US dollars. As such, it is often seen as a currency - XAU or XAU/USD.

The main drivers for the price of gold are the aggregate supply and demand for the numerator (XAU) versus the value of the denominator (USD).

Find out what other factors can shift Gold prices in our "What Moves Gold's Price" article.

Among the main factors determining gold prices are:

Geopolitical tensions and uncertainty - Political uncertainty, and/or instability is probably the single most influential factor determining the price of gold. Not knowing what will happen to political, social and economic realities has a psychological effect on day traders who hope to profit from changes in gold and other financial instruments.

Monetary policies of leading economies - particularly US Federal Reserve and People's Bank of China which are the central banks of the world’s two largest economies. Central banks affect global gold markets by purchasing and selling gold bullions in an effort to balance the country’s payments system, and to stabilise their currency’s exchange rate in relation to other foreign currencies (Forex).

Supply and demand - within the commodity markets on which precious metals are traded as futures and on spot markets. Supply and demand of gold correlates to their availability in nature (discoveries) and expected value as an exchangeable commodity.

Follow these steps to trade gold CFDs:

  1. If you don’t already have a Plus500 account, open a Trading Account Here.
  2. Complete registration and deposit funds.
  3. Search for gold under ‘Commodities’ or type ‘Gold’ in the search bar.
    * You can add Gold to your Watchlists, by clicking the Watchlists star in the instrument’s info screen.
  4. View gold’s chart indicators and check for events affecting the price of gold on the Economic Calendar.
  5. Trade gold by opening a position according to the direction you think it will move. You can consider adding stop orders that can help you protect your profits and limit your losses.

Historically, shares and gold are considered opposites. When stock markets rise, the price of gold tends to fall, and vise versa. This has mainly to do with gold’s status as a 'safe haven' (i.e. a financially stable asset) when compared to stocks which are seen as more volatile.
However, when trading gold and shares using leveraged CFDs, the differences between these assets are not so substantial.

Plus500’s leverage ratio for trading gold CFDs is 1:20, meaning with as little as 100 € you can gain the effect of 2.000 € capital. For a list of all our commodities, click here.

The leverage ratio available for shares CFDs is 1:5. For a list of all our shares, click here.

In addition, please note that as a CFD trader you do not actually own the underlying asset, but rather you are trading on the expected changes in its price, in the form of a Buy or Sell position.

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