Diversified Investments
Just as 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 trading 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. The supply of gold is growing at a very slow rate each year compared to the amount of gold being hoarded, so the price of gold has been rising over the past 50 years.
Precious metals are difficult to mine, which makes them scarce and expensive. That’s why people call them “precious” metals.
Of all the precious metals, gold is the most popular among traders. Gold provides online traders with a rare trading opportunity. This is mainly because gold is different and has a unique position in the world economy.
Participants in gold trading
The gold market attracts a large number of traders. Most of them are looking for safe and profitable investment options to achieve continuous growth of wealth or avoid the risks associated with other investments. This is exactly what makes gold so attractive. The participants in the gold market can be divided into the following two categories:
A Golden Follower
Mainly including individual investors and gold traders. Gold believers account for a large proportion of the entire gold market. These people are fundamentally optimistic about this expensive commodity and allocate a large amount of assets to gold. A large number of retail participants in the market are of this type. They tend to hold positions for a long time and inject a large amount of liquidity into the gold market through continuous buying intentions.
B Large institutions
Such institutions include hedge funds, banks, and brokerage firms involved in buying and selling gold. Most of these institutions use well-calculated strategies and develop diversified trading portfolios to provide clients with safe investment protection in a highly volatile market environment. Most of these institutions do not stick to gold trading. Their portfolios often include other investment options.
Factors that affect gold prices
There are many factors that affect the price of gold. Here is a brief overview of the factors:
Central Bank
These institutions participate in gold trading to adjust their foreign exchange reserves in order to stabilize the value of their currencies, thus pushing up the price of gold accordingly.
crude
Crude oil and gold are closely linked because they are both priced in U.S. dollars. In addition, rising crude oil prices will also increase inflation, which in turn will increase gold prices.
Dollar
Since gold is priced in U.S. dollars, when the value of the U.S. dollar rises, it naturally puts downward pressure on the price of gold.
stock market
When stocks fall, traders tend to turn to buying gold, thus boosting the price of gold.