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HOW TO UNDERSTAND THE GOLD MARKET?
Have you ever been curious about the market and gold investing? In this article, we answer all of your burning questions!
WHAT IS THE GOLD MARKET?
The gold market refers to the global purchasing and selling of gold. This is a wide idea, yet it is actually fairly easy. Even if it is expressed in multiple currencies, the spot price of gold is the same throughout the market. For millennia, gold has been used as a medium of trade, and its intrinsic value makes it a great instrument for transferring money globally and long-term investing. Smart investors keep a close eye on the gold market in order to organize their purchases as efficiently as possible.
Ancient Egyptians began mining the valuable metal in the year 2000 BC, and it was then that gold was first traded. Global supply of the commodity has increased to more than 170,000 tonnes, with output increasing by threefold year on year since the 1970s.
The Emergency Banking Act, passed in March 1933, granted the president the authority to restrict gold movements both internationally and domestically. It also provided the Secretary of the Treasury the authority to compel the surrender of gold coins and gold certificates under certain circumstances. The administration waited to use these authorities in the expectation that the problem would fix itself, but the gold outflows remained regardless of what the administration did.
On April 20, 1933, President Franklin D. Roosevelt signed a proclamation formally suspending the gold standard in the United States. The decree forbade the export of gold, as well as the conversion of cash and deposits into gold coins and ingots by the Department of the Treasury and other financial institutions. Gold outflows were halted as a result of the efforts.
In May 1933, the administration attempted to reduce the country’s ties to gold once more. Under the Thomas amendment to the Agricultural Relief Act, the president was given the authority to cut the gold content of the dollar by up to 50%. Aside from that, President Barack Obama was given authority to back the dollar with silver rather than gold, or with both silver and gold, at silver prices chosen by the Obama administration.
WHAT IS THE RELATIONSHIP BETWEEN GOLD AND CURRENCY?
Since its discovery, gold has been utilized as a tradable commodity, and until recently, it served as a relative benchmark for a variety of currencies. A number of European countries adopted gold standards during the nineteenth century, but the outbreak of World War II and the accompanying financial difficulties resulted in the suspension of gold trading in England. Some currencies have been tied to the gold standard for longer periods of time than the United States; the Swiss franc was the latest currency to be detached from gold in 2000.
WHAT DETERMINES THE PRICES OF GOLD?
Throughout history, the London Gold Fix has served as the most widely used benchmark for the price of gold. The London Gold Fix is conducted twice a day on the London gold market, and it has been in existence since 1919. This gold fixing is done by teleconference and is used to settle contracts between members of the London Gold Market. However, this gold fixing also serves to provide a recognized rate that is used to fix the price of the bulk of gold commodities around the world. Gold fixing takes place twice a day, at 10:30 a.m. and 3 p.m., London time, in US dollars, pounds sterling, and euros, respectively.
WHAT ARE THE FACTORS INFLUENCING THE GOLD MARKET?
Supply and demand are the most important factors influencing the gold market, just as they are for all commodities. Gold, on the other hand, is particularly attractive since the gold market is less reliant on newly mined gold than other precious metals markets, making it a more interesting investment. The gold that has been utilized for personal ornamentation, for example, is frequently returned to the market after a few years or generations. Approximately a modest amount of gold is employed in medicinal and industrial uses each year, with the remainder being placed in gold-traded securities and mutual funds. A brief examination of the gold market’s supply and demand will reveal the constantly shifting equilibrium that makes gold a sound long-term investment with real potential for growth over time, despite its high volatility.
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Gold market cap
The total value of all of a company’s shares of stock is referred to as the market capitalization. Because it reflects what investors are prepared to pay for a business’s stock, the market capitalization evaluates how much a firm is worth on the open market as well as how the market perceives the company’s future prospects. The current market capitalization of gold is approximately $11.204 trillion.
This figure was calculated by multiplying the current gold price ($1,764 per ounce) by the total amount of gold stored above ground in the world’s gold reserves.
According to the World Gold Council, the amount of above-ground gold reserves is estimated to be approximately 197,500 metric tonnes (End-2019). It is important to note that estimates of above-ground gold reserves might vary by up to 20% from one source to another depending on the source.
As a result, it is reasonable to estimate that the current Market Capitalization of gold is between $8.963 trillion and $13.445 trillion.
As at the date of this publication, Gold was ranked number 1 with the highest market cap according to 8marketcap.com
Trading Gold and all the Options available.
- Gold bullion – Physical gold, usually in the form of bars or specialized coins, is referred to as gold bullion. The value of a precious metal is determined by the type of bullion and the unit weight of the precious metal. Despite the fact that holding real gold is less complicated than purchasing vast volumes of crude oil, there are still transaction charges, storage costs, and insurance to consider.
- Gold certificates – Gold certificates, which are similar to currency banknotes and have been used since the 17th century, are used to prove ownership.
Gold futures and micro futures contracts agree on a fixed price for a commodity at a specified date in the future, referred to as the delivery date. The fact that gold futures are exchanged on exchange systems means that they offer greater leverage than dealing in real gold. The amount of the return is determined by the fluctuations in the price between the time the contract is agreed upon and the time it expires.
- Gold contracts for difference (CFDs) – Gold contracts for difference (CFDs) are short-term agreements to buy or sell a specific amount of gold on a specific date. Gold CFDs have a predetermined expiration date. The amount of money earned from trading gold CFDs will vary depending on how the price of gold fluctuates throughout the contract.
- Gold exchange-traded funds (ETFs) – Gold exchange-traded funds (ETFs) are purchased through a broker or stock exchange. They enable you to purchase a pool of securities, such as commodities, without having to purchase all of the individual securities. The costs are cheap, but the value of the ETF is related to the price of gold, therefore it is a risky investment.
- Swaps on gold — Swaps are unique contracts that are exchanged over the counter (OTC). Futures and options contracts, on the other hand, are traded on centralized exchanges.
Trading Gold on the Forex Market
In the foreign exchange market, gold is practically treated as a currency. It is almost always traded against the US dollar, and the symbol for this is XAU/USD.
As a result, your approach must keep track of changes in the value of the US dollar.
An increase in the value of the US dollar could result in a decrease in the value of gold. So keep up with forex news websites for advice on impending trends and analysis, as well as for general information.
When trading gold on the forex market, it is also crucial to consider the availability of liquidity. The average daily trading volumes of gold surpass those of all other currency pairs, with the exception of the EUR/USD, GBP/USD, and USD/JPY.
Strategy for Investing in Gold
- Jewelry production accounts for half of global demand, according to volume per day data. Another 40% is made up of investment accounts. If you look at price charts, you’ll see that prices rise when demand is high and supply is low. Live price rates will decline if supply increases and demand decreases.
- Market volatility — Your charting software’s real-time trading signals will react to market movements. When stocks are underperforming, investors turn to gold. When stock market projections are positive, however, gold trading levels fall.
- Geopolitics is a term used to describe the study of politics. If you look at gold’s price history, you’ll notice that today’s projections are influenced by geopolitical influences. Because of the uncertainty in the financial markets, firms will rush to buy gold, driving up prices. To guarantee you’re fully equipped, familiarize yourself with a globe map and read up on basic economics.
Brokers for Gold Trading
Charting software is available on the leading gold trading websites. MetaTrader 4 (MT4) is a popular platform for gold trading.
However, regardless of any strategy you use, your software will require simple price charts and signals. Any other free tools that explain data, symbols, and patterns will also be beneficial.
Essentially, the top brokers assist you in making informed predictions and market forecasts. Keep your eyes out for further learning resources that discuss alternate gold trading approaches.
There are also online firms that allow you to purchase actual gold and store it for you. This solves one of the most difficult aspects of purchasing physical gold: deciding where to store it safely!
Bullion Vault is one such service. You can buy physical gold from them, which they store and safeguard. Gold (and other precious metals) can be bought and sold at any time, hence the service removes any liquidity risk.
Hours of the Gold Trading Market
We’ve compiled a list of the most important opening and trading hours for some of the most important gold exchanges.
- Trading hours for online purchases in London, United Kingdom are 08:00 – 17:00. (GMT)
- Online trading hours in New York, USA: Opens at 13:20 and closes at 18:30. (GMT)
- Hours of operation for online trading in Mumbai, India are 04:30 – 18:00. (GMT)
- Online trading hours in Dubai, United Arab Emirates – Opens at 04:30 and closes at 07:30. (GMT)
- The online trading hours in Jakarta, Indonesia are from 02:30 a.m. to 10:00 p.m. (GMT)
- Online trading hours in Islamabad, Pakistan – Opens at 05:00 and closes at 13:00. (GMT)
Please keep in mind that gold trading hours may change on weekends and holidays. In addition, although not noted above, internet gold trading hours in Australia, New Zealand, South Africa, Thailand, Canada, the Philippines, and Europe are nearly constant, running almost 24 hours a day in some cases.
Advantages of owning and trading it
- The capacity to hedge against inflation is one of the advantages of trading gold. Unlike most traditional currencies, gold maintains its purchase value in the face of inflation.
- Gold also holds its value during times of global unrest, even when the value of other assets plummets. Finally, traders can trade gold with a variety of financial instruments ranging from e-micro futures to stocks and gold bonds.
- Although the gold market appears to be a complex system, it is founded on simple principles. Fortunately, in order to invest effectively, an investor may easily stay on top of essential news and comprehend the price of gold.
Disadvantages of owning and trading it
- Gold is quite volatile in price. In addition to the possibility of generating substantial gains, the market also carries a significant danger of incurring financial losses.
- It is not possible to predict where gold will be in a few days or a week based on the rate and price of gold during today’s trend. There is also a fee associated with trading gold.
- Brokerage fees, for example, are likely to be associated with gold ETFs. Finally, there are significant liquidation spreads associated with gold trading.
The laws and rules governing gold trade differ from one country to the next. Brokers and platforms are typically subject to regulation, and selling gold financial instruments may necessitate the acquisition of a license. For example, in the United Kingdom, gold futures, options, and CFDs are under the jurisdiction of the Financial Conduct Authority (FCA) (FCA). Commodity derivatives are governed by the Markets in Financial Instruments Directive (MiFID) in the European Union.
Broker-dealers will also be required to obtain a license in a number of countries, including Dubai, Singapore, Zimbabwe, Malaysia, India, South Africa, and Hong Kong, to name a few. Ensuring that intermediaries are properly licensed provides a level of assurance and protection to short-term traders.