Diversified investments
Experienced investors, like large institutions, tend to diversify their portfolios to reduce risk and increase returns. Gold trading is considered an excellent way to diversify a portfolio, as gold prices tend to be negatively correlated with the stock market.
Protect against inflation
As inflation increases, currencies lose value over time, and gold holds its value better than currencies in the face of inflation. Even in 2008, when global markets were in recession, gold prices were barely affected. In fact, from 2007 to 2008, gold prices rose by about 4%.
High store of value
About 95% of the world’s gold is held as jewelry or in bullion vaults. Compared to the amount of gold being hoarded, the supply of gold is growing at a very slow rate each year, so the price of gold has been rising over the past 50 years.
Precious metals are difficult to mine, resulting in their scarcity and high prices. This is why they are referred to as “precious” metals.
Of all precious metals, gold is the most popular among traders. It offers unique trading opportunities for online traders. This is primarily due to gold’s unique nature and its unparalleled position in the global economy.
Participants in gold trading
The gold market attracts a large number of traders. Most of them are looking for a safe and profitable investment option to achieve sustainable wealth growth or to mitigate the risks associated with other investments. This is precisely what makes gold so attractive. Participants in the gold market can be divided into two main categories:
A Golden Follower
Primarily consisting of individual investors and gold traders, gold believers comprise a significant portion of the gold market. These individuals fundamentally believe in this expensive commodity and allocate a significant portion of their assets to it. A significant number of retail participants in the market fall into this category. They often hold long-term positions, injecting significant liquidity into the gold market through their continued buying interest.
B Large institutions
These institutions include hedge funds, banks, and brokerage firms involved in gold trading. Most employ carefully calculated strategies and develop diversified trading portfolios to provide clients with investment security in a highly volatile market. However, most of these institutions are not rigidly focused on gold trading; their portfolios often include other investment options.
Factors affecting gold prices
There are many factors that affect the price of gold. The following is a brief overview of the factors that affect gold prices.
central bank
These institutions participate in gold trading to adjust their foreign exchange reserves and stabilize the value of their currencies, thereby pushing up the price of gold.
crude
Crude oil and gold are closely linked because they are both priced in US dollars. In addition, rising crude oil prices can also exacerbate inflation, which in turn can increase gold prices.
Dollar
Since gold is priced in US dollars, when the value of the US dollar rises, it naturally puts downward pressure on the price of gold.
stock market
When the stock market falls, traders often turn to buying gold, thereby boosting the price of gold.