Gold Trading - How to Start Gold Trading Online

In this article you will learn:

• How to Buy Gold?
• Trading Gold CFDs
• Gold ETFs
• Gold Stocks
• Best Time to Trade Gold 
• Gold Trading Hours

Buying gold is seen as a safe investment by many people around the world – even those who do not deal with the financial markets. Gold has always been regarded as an asset that maintains its value due to its unique properties. The technological advances have created various ways to trade gold. This article is a quick overview of the basics of gold trading. 

How to Buy Gold

There are several common ways to buy gold. As gold is usually associated with its physical form, one might invest in gold simply by buying gold coins, gold bars or jewellery. This idea is certainly the most traditional one, but unfortunately it has many drawbacks – high transaction costs, high storage costs and low liquidity. The world has changed a lot in the past few decades. The liberalisation of capital movements and new technology made gold trading unbelievably simple. Apart from that, the financial markets have enabled investors to buy gold with incredibly low fees, or even with no transaction costs at all.

Trading Gold CFDs

Trading gold CFDs has many advantages, such as low fees and the opportunity to use leverage in particular. As leveraged gold trading requires only a certain percentage of the whole position, it is usually associated with experienced gold traders or gold day trading due to high levels of risk. Moreover, CFD gold trading also gives investors a chance to open short positions, which could be particularly useful in various gold trading strategies.

The best gold trading platforms are often linked to forex trading as well, therefore some people may use phrases like “gold forex” or “forex gold trading”, which is wrong by definition (FX or forex refers to currency trading). Trading gold CFDs is usually simple and convenient, as world’s top brokers enable gold trading online through their one-stop shop apps and platforms.

Gold ETFs 

Gold exchange-traded funds have become popular these days, as they offer an interesting alternative to accessing gold. Some say that buying gold ETFs might be a good way to invest in gold for beginners or for people who want to buy gold as a long-term investment, since the construction of ETFs is easy to understand.

So, how does one buy gold ETFs? It’s very simple, as gold ETFs act like individual stocks, and they trade on an exchange. This means that investors do not actually own the physical gold, but they still gain exposure to the commodity, as most standard ETFs (vanilla ETFs) hold a certain number of gold bars for each share of the ETF issued. As a result, ETFs track the value of gold and any change of gold prices is reflected in an ETF’s market price. 

Gold Stocks

Another way of investing in gold is to buy stocks of gold mining companies. In this case, investors gain indirect exposure to the gold market as gold producers are heavily dependent on gold prices. The outlook for such firms is usually bright when gold prices soar, as it is expected that sales and earnings of gold miners will advance as well.

Therefore, there is a significant positive correlation between gold prices and certain gold stocks. It is worth pointing out that gold mining companies may also pay dividends, which is a huge advantage compared to a direct investment in precious metals. This factor could be particularly critical for long-term dividend investors and it implies that in some cases buying gold stocks could be an even better idea than buying gold.

Please be aware that the presented data refers to the past performance data and such is not a reliable indicator of future performance.

Gold stocks are positively correlated with gold prices, which means that the shares of gold miners gain along with rising gold prices. On the other hand, gold stocks tend to fall when the price of gold dives. Barrick Gold Corp (GOLD.US) may be found among the largest gold producers in the world. Source: xStation5

The Best Time to Trade Gold

Many market participants wonder what the best time to invest in gold is. Many traders refer to gold as a “safe haven” asset. This means that it is regarded as a relatively safe asset during tough times, such as during financial crises or recessions. There is no coincidence that central banks hold gold as a reserve asset, as it is widely expected that gold will preserve its value. Such reasoning also affects retail investors’ decisions, which is why gold is often found in investors’ portfolios.

Apart from that, gold may become particularly popular during high inflation periods. As rising inflation usually makes people concerned about the shrinking value of their money, gold is expected to serve as an inflation hedge. Even though the relationship between gold prices and inflation is not as significant as earlier (we have not experienced elevated inflation for many years now and quantitative easing programmes had their effects on this phenomenon too), buying gold may still be a wise move in countries with relatively high inflation. Gold is also regarded as an asset class, which could help investors build a balanced portfolio. This idea may be particularly compelling for risk-averse investors, as portfolio diversification may reduce risk and volatility.

Nevertheless, the relationship between gold prices and US yields has emerged following the global financial crisis. If investors buy US government bonds (known as US Treasuries), US yields fall, which is positive for gold markets. On the other hand, when investors decide to sell US Treasury bonds, US yields tend to rise, which is negative for gold prices.

The latter occurred at the beginning of 2021, as surging US yields pushed gold prices significantly lower. The phenomenon may be associated with soaring inflation expectations, which in theory would require central banks to act accordingly to the situation (including higher interest rates). 

Please be aware that the presented data refers to the past performance data and such is not a reliable indicator of future performance.

Following the global financial crisis, the negative correlation between gold prices and US 10-year Treasury yield has become very apparent. Therefore, rising US yields usually lead to falling gold prices. Source: fred.stlouisfed.org

Gold Trading Hours

So far, we have discussed several aspects of buying gold. What about gold trading hours? While this shouldn’t really matter for long-term investors who have a time horizon of several years, it could be particularly important as far as gold day trading is concerned.

In general, there are two peak times of the day – European markets open and US markets open. European peak occurs around 8 am GMT (9 am CET). However, most activity in the gold market usually occurs following the US market open – by some estimates this peak can be even twice as big as the European one. The elevated volatility lasts from around 1 pm GMT (2 pm CET) until around 4 pm GMT (5 pm CET). This time may be a good period to look out for when trading gold.