Introduction to Online Gold Trading (XAU/USD)
"Gold is money, everything else is credit" - J.P. Morgan 1912
Since the dawn of men's history gold has been recognized as a valuable commodity. For thousands of years, Gold served the role of a global currency. Investing in Gold is still very popular worldwide and that popularity translates to 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 market determines the gold price 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 is available 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 billion years ago. Actually, in the same way, other precious metals came to Earth, such as 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 see later in this analysis.
The Main Characteristics of Gold as a Precious Metal
Here are some of the unique characteristics of Gold:
(1) Gold durability over time is extraordinary as it doesn't corrode
(2) Gold may conduct heat and electricity better than copper
(3) Gold is a hedging instrument against inflation (the only metal)
(4) There is a high demand for gold from jewelry (45% of the aggregate demand for gold each year)
(5) Gold is highly used as a reserve asset by every Central Bank in the world. In addition, many commercial banks, investment firms, and individual investors include gold in their portfolios for achieving better diversification.
Gold Chart since 1915
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% |
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 for 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 for about 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%)
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 for 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 for about 10% of the total demand for Gold.
(4) Technological Applications (7%)
The unique characteristics of Gold as a metal make it essential for many advanced applications. About 7% of the aggregate global demand for Gold is derived from technical and technological applications. The major player here is electronics but there are many applications in dentistry, the 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 of Gold, here are some important factors that influence 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 investment types that will maintain their value, investment types such as 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 the case of an important turmoil that may destabilize the general macroeconomic environment, the price of Gold can fly.
(4) Systemic Concerns
Systemic Risk is the worst enemy of any investor. Gold can work as a tool for avoiding the worst-case scenario. In times of great financial concerns, Gold works like a ‘Safe Haven’ 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 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 Info |
Minimum Deposit and Funding |
Information |
|
IC TRADING
|
REGULATED BY:
US TRADERS: NO |
IC Trading offers the following Gold Pairs:
|
■ Contract size: 100 ■ Trading spread: $0.05 At the time of the review: XAUUSD SWAP Long:
XAUUSD SWAP Short:
|
$200 Minimum Account for all trading platforms FUNDING METHODS
|
Wide Asset Index and Fast Order Execution |
|
LQDXFX
|
US TRADERS: NO |
LQDFX offers the following Gold Pairs:
|
■ Maximum lot size being 40 lots |
$20 Minimum Account FUNDING METHODS
|
Ideal Broker for Gold and Silver Trading as they offer numerous Gold/Silver pairs
|
MORE ON CARRYTRADER
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■ Trading Gold Guide (XAU/USD)
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