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Popular Ways to Trade Gold
Date Modified: 26/07/2023
Gold has been a highly sought after precious metal for thousands of years.
Regarded as a safe haven metal, regardless of location, economic situations, or political instability, it has historically maintained value well over time. Today, Gold can be traded by buyers, sellers, miners, and speculators who may open positions against the price movements of the precious metal without owning the underlying asset.
Each strategy comes with its own potential risks and potential rewards so traders should pick the trading strategy that best suits them.
Trading Gold CFDs
There are multiple ways to trade Gold, including traditional markets and CFDs. Below are four popular ways of speculating on the price of Gold on the Plus500 platform.
Gold CFDsContracts for Difference (CFDs) allow you to open a position without needing to purchase the underlying asset. Rather, a trader can open a position to go Long or Short on an instrument, speculating on the price movement and recognizing potential gains or losses depending on the real-time movement of the instrument’s spot price as traded Over the Counter (OTC).
By trading based on their spot price, rather than on a future price, traders can recognize higher liquidity and availability.
Illustrative prices.
*Options CFDsThe benefit of Options CFDs on Gold is that you can pay less to open your position than if you chose to buy a gold CFD itself. This is because you are opening a CFD position against the Options contract, not Gold itself. This can offer a trader exposure to the instrument at a lower price.
It is important to remember that high volatility of Option CFD can carry higher risks. Moreover, there are many other factors which can cause major fluctuations in the value of Option CFD.
Gold ETFsAn ETF closely follows the value of an underlying asset.
A CFD on a Gold ETF, such as GLD tracks the daily price of Gold, allowing traders to open Buy and Sell positions against the underlying ETF.
Exposure through Gold CFDs
Trading CFDs on Gold allows traders to become exposed to the volatility of this popular commodity without needing to purchase and maintain the underlying asset. It is also possible to go short on a commodity, should a trader speculate that the price will drop.
For example, traders who open a Buy position speculate that the price of Gold will rise. If they are right, they will make a profit on the price difference between the opening price and the higher closing price of their position. If however, the closing price is lower, they will incur a loss that is equal to the difference between the opening and closing rates.
On the other hand, if a trader believes that the price of Gold will fall, they can open a Sell position, allowing them to profit off of the opening price and lower closing price. On the same note, if the price rises from the opening price and the trader closes their position at the higher rate, the trader will incur a loss which will be the difference between the opening price and the higher closing price.
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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:
- If you don’t already have a Plus500 account, open a Trading Account Here.
- Complete registration and deposit funds.
- 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. - View gold’s chart indicators and check for events affecting the price of gold on the Economic Calendar.
- 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 R750 you can gain the effect of R15 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.