Trading GoldIntroduction to Online Gold Trading (XAU/USD)

"Gold is money, everything else is credit" - J.P. Morgan 1912

Since the dawn of men history gold has been recognized as a valuable commodity. For thousands of years, Gold served the role of a global currency. Today investing in Gold is still very popular worldwide and that popularity translates to with high liquidity. High liquidity means that the difference (spread) between buyers and sellers is tight and that makes Gold a lucrative financial asset for short-traders, even for day-traders. The gold price is determined by the market on a 24/5 basis. Here is all the essential information to trade Gold.

Important Numbers for Gold Traders

Today only 156,000 tons of Gold are available in all over the world. 2,500 extra tons are mined each year.

Where Gold Came From?

Recent studies have shown that gold came to earth from a bombardment of meteorites that happened during our planet’s final stages of formation, some 4.5 billions years ago. Actually in the same way other precious metals came to earth, such is platinum and palladium. (Source: University of Maryland, College Park, December 10, 2010).

What makes Gold Unique?

Gold is unique due to its durability in time as it doesn't corrode. Furthermore gold can conduct heat and electricity. All these features together make Gold necessary in many modern applications including electronics, micro-conductors, space travel etc. But actually, the demand for Gold is driven by Jewellery as you will be able to see later in this analysis.

Historic Gold Chart

Image: Gold Price historic chart (source: MacroTrends).

 

Agreements and The Historic Role of Gold

These are the four (4) main International Agreements that were based on Gold and formed the Global economy for several decades.

1. US Gold Standard Act. (1834-1933)

2. Gold Standard Rule (1914-1933)

3. Bretton Woods Fixed Rate System (1946-1971)

4. Washington Agreement on Gold (1999)

 

Countries with the Highest Reserves in Gold

In the below table you may see the countries/organizations with the highest reserves in Gold but also the percentage of Gold Reserves as of their total Foreign Exchange reserves.

Table: Top Gold-Reserves Countries (source: World Gold Council as of December 2013)

Country or Economic Zone or Organization

Gold Reserves (tons)

(%) of total Foreign Exchange Reserves

1

European Union

8,972

76.0%

2

United States

8,133

70.0%

3

Germany

3,387

66.0%

4

International Monetary Fund (IMF)

2,814

(-)

5

Italy

2,452

65.0%

6

France

2,435

65.0%

7

China

1,054

1.0%

8

Russia

1,041

8.0%

9

Switzerland

1,040

8.0%

10

Japan

765

2.0%

11

Netherlands

612

51.0%

12

India

557

7.0%

13

Turkey

519

15.0%

14

European Central Bank (ECB)

502

26.0%

15

Taiwan

423

4.0%

16

Portugal

382

84.0%

17

Venezuela

368

72.0%

18

Saudi Arabia

323

2.0%

19

United Kingdom

310

12.0%

20

Lebanon

287

23.0%

 

HotForex Gold & Silver

 

Breaking the Aggregate Demand for Gold

The global demand for Gold is huge and derives from several different industries:

(1) Jewelry (45%)

Jewelry is the traditional buyer of Gold. Jewelry accounts about 45% of the total gold demand. China and India are today the two largest markets for gold jewelry. The demand of China and India combined accounts about the half of the total demand within the Jewellery industry. According to the World Gold Council, by 2020 China and India together will have one billion new urban consumers.

(2) Investment Gold (35%)

The Gold has been used as an investment asset for thousands of years. Investing in Gold is essential for any portfolio targeting the highest diversification possible. Investment in gold accounts more than one-third of the aggregate global demand for gold.

(3) Central Banks (10%)

Since 2010, central banks are net buyers of gold. Today they account about 10% of the total demand for Gold.

(4) Technological Applications (7%)

The unique characteristics of the Gold as a metal make it essential for many advanced applications. About 7% of the aggregate global demand for Gold is deriving from technical and technological applications. The major player here is the electronics but there are many applications in dentistry, space industry and in fuel cells.

(5) Other Sources of Demand for Gold (3%)

Other Factors that Influence the Price of Gold

Except for the real demand and supply for Gold, here are some important factors that influence the Gold’s price fluctuations:

(1) The Level of Interest Rates

Gold does not pay any interest rate and therefore at times when the interest rate of competitive investment types increases the price of Gold decreases.

(2) Inflation

High inflation is bad news for any economy. When inflation increases then investors are seeking for investment types that will maintain their value, investment types such is Gold. When inflation is increasing the demand for Gold is increasing too.

Note: In general when inflation increases in an economy the interest rate of the domestic currency increases too and therefore factors (1) and (2) may have a neutral effect in the long run as concerns the price of Gold.

(3) Major Political Events or War

In a case of an important turmoil that may destabilize the general macroeconomic environment, the price of Gold can fly.

(4) Systemic Concerns

The Systemic Risk is the worst enemy of any investor. Gold can work as a tool of avoiding the worst-case scenario. In the time of great financial concerns Gold works like a ‘Safe Heaven’ for any investor.

 

 

 

Online Gold Trading

Online gold trading is the simplest way to invest in gold. If you invest online you need no storage while you can use also high leverage in order to increase the dynamics of your position. The symbol when trading gold online is XAU/USD.

 

Comparing Brokers offering Online Gold Trading

Here is a simple comparison between popular and highly regulated brokers offering online Gold Trading

Gold-Trading Online Brokers

Company’s Regulation

Gold Trading Method

Trading Gold Cost

General Max Leverage

Minimum Deposit and Fund Methods

Information

Dukascopy Bank

Swiss Bank regulated by FINMA (Swiss) and MiFID (EU)

Trading on Spot Gold and Silver

■ Typical Spread 26 pips

■ Commissions (30% discount via TradingCenter.org)

200:1

$5,000

 

Bank Wire, Bank Guarantees

30% commissions discount via TradingCenter.org

Learn More

HotForex

MiFID (EU) and CySEC (Cyprus)

Trading Gold and Silver in USD and Euro

XAU/USD and XAU/EUR

■ Typical Spread 32 pips

■ No Trading Commissions

1000:1

$5

 

Bank Wire, Credit Cards, MoneyBookers, WebMoney, Neteller

 

Visit The Company

FBS

CRFIN (Russia)

Trading on Spot Gold and Silver

■ Typical Spread 30 pips

■ No Trading Commissions

1000:1

$10-$500

 

Bank Wire, Credit Cards, MoneyBookers, MoneyGram, Neteller, Western Union

 

Visit The Company

 

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Trading Gold Guide (XAU/USD)

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