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Investing in gold is a timeless tradition that continues to allure investors seeking a secure store of value. For millennia, people have turned to the yellow metal in times of uncertainty, viewing it as "gold standard" protection against societal and economic instability. However, for the modern investor with an online portfolio, taking advantage of gold's enduring qualities may seem challenging or inconvenient when physical bars aren't practical. Thankfully, advances in financial technology now present a user-friendly solution - with just a few clicks, you can easily gain robust gold exposure virtually.
In the following guide, we'll outline straightforward approaches for participating in gold's steadiness from your computer or phone. From understanding gold's performance as an asset to selecting top trading platforms, learning how to profitably invest in gold has never been simpler.
Can I lose money investing in gold?
Yes, while historically gold retains value well, its price does fluctuate. There is market risk that it could decrease and result in investment losses.
Is it profitable to day trade gold?
Day trading gold requires accurately predicting short-term price fluctuations, which is challenging since it moves on unexpected news. Many traders find it difficult to consistently outperform versus a long-term investment strategy.
What's the best way to analyze gold prices?
Fundamental factors like inflation, GDP growth and politics drive long-term trends. Technical analysis of charts using indicators help identify entry/exit points in shorter timeframes.
Is dollar cost averaging a good strategy for gold?
Averaging purchases over time smooths out volatility and removes pressure to try and "time the market." It works well for a long-term investor who wants consistent exposure to gold.
One of the best ways to buy gold online is through gold futures. Futures are simply a financial contract between a buyer and a seller. The buyer (or investor) agrees to buy the asset from the seller at a specific price based on a date in the future.
Gold futures are an exciting proposition because they offer investors the chance to trade gold without paying the full amount straight away. Instead, an initial payment is agreed upon, with a future payment contracted at a fixed date. This way, the investors don't have to buy the gold physically, but they can still profit from future price movements.
Gold futures are a great alternative to mining stocks and bullion coins and can be bought in 100 ounces, 33.2 ounces, and 10 ounces. Many investors like gold futures because they are reasonably straightforward. Investors can buy or sell gold without management fees, and the taxes can be split between long-term and short-term capital gains.
👍 Gold Futures Advantages
• Investors can buy gold without having to worry about finding and paying for secure storage facilities
• Gold futures require a small initial investment, plus investors only have to pay the balance on the futures contract
• Short sell possibilities
•Good liquidity
•Investors can hedge risks
👎 Gold Futures Disadvantages
• Gold futures are volatile, meaning there is a chance that markets can crash
• Gold price fluctuations can be quite extreme, meaning investors can lose money if there are significant price dips
• The spot limit for gold futures contracts is 6,000
Gold ETFs
Gold ETFs are funds that you can trade like stocks. They have become a prevalent type of investment in recent years. Gold ETFs are a low-cost and diversified alternative that invests in gold-backed assets. When you buy gold ETFs, you don't own the physical commodity.
These instruments let investors have exposure to gold markets through more minor positions than futures contracts or physical ownership. There are several Gold ETFs to choose from. These ETFs can be traded at platforms like E*Trade, Interactive Brokers, and TD Ameritrade.
👍 Gold ETFs Advantages
• Buying physical gold incurs making charges. These costs don’t apply to ETFs
• No physical storage requirements
• Easy to sell into a highly liquid market
•Gold ETFs are more tax-efficient than physical gold
👎 Gold ETFs Disadvantages
• Can’t be redeemed in gold
• High volatility and market risk
• Account maintenance costs
Gold-based CFDs
A gold CFD (contract for difference) is a derivative that allows investors to trade an underlying asset (in this case, the price of gold) without taking ownership of the commodity. The best thing about CFDs is that you can make gains as if you owned the actual gold. In addition, CFDs are traded on margin, which gives you more exposure to the market for a fraction of the amount needed to buy physical gold.
Trading gold works in a similar way to forex trading. On trading platforms, the trading code is XAU, and the most popular Gold exchange rate is XAU/USD. However, other pairs are available, like XAU/EUR (Euro), XAU/GBP (British Pound), and XAU/JPY (Japanese Yen).
Again, Gold CFD trading is about taking advantage of gold price movements. To do well, you need to predict and analyze market movements. To do this, you'll need to develop a deep understanding of the various factors that affect the price of gold.
Gold CFD Advantages
Accessibility
Buying physical gold is expensive, with the price of one gold bullion averaging $50,000 or more. CFDs allow access to this expensive market by offering purchases of smaller denominations.
Additionally, a CFD trading account is quick to set up.
Liquidity
Daily gold trading volumes are estimated to be around $70 billion. This number is more than most currency pairs. The exceptions are the vast markets for EUR/USD, USD/JPY, and GBP/USD. These large trading volumes mean that gold CFDs have high liquidity.
There are several benefits of high liquidity. For example, gold CFDs are less expensive to trade when compared to other financial instruments. Also, the commissions are usually lower. The main benefit of highly liquid markets is that it's easier to sell you positions.
Go Short or Long
Trading gold CFDs offers ways to make money whether the market is going up or down. Because of the market's high liquidity, you can capitalize on the market rising or falling. If you think the price of gold will increase against a currency, you can go long, but if you believe the price of gold will decrease against a currency, go short.
No Contract Expiry
Gold CFDs don't have an expiration date. Investors can choose when to close a position. This can be incredibly beneficial as you can keep a position open until you hit the profit you want.
Volatility
The gold market is incredibly volatile. Its price fluctuates more than traditional currency pairs like EUR/USD. Increased volatility means increased opportunities to make a profit.
Leverage
CFDs are a leveraged financial product. This means that investors don't need to deposit the entire amount to open a position. Lower margin requirements allow investors more exposure. For example, a 100:1 leverage on a $100,000 only requires a deposit of $1,000. Of course, investors need to practice a lot of caution around leverage.
Gold CFD Disadvantages
Margin Risks
While margin is an advantage, it can also be a considerable disadvantage. Trader's profits and losses are amplified with a margin, and if the market turns against you, this can lead to significant losses.
Long Positions
Most gold CFD traders open positions to take advantage of short-term price movements. However, some traders choose to maintain long positions. In these scenarios, brokers can choose to charge rollover rates for keeping the position open. In some cases, this can become very costly. Traders should understand these costs in advance before holding a position. Sometimes the costs outweigh the benefits.
Volatility
Volatility is both a curse and a blessing. Gold is considered a safe haven when stock markets are unpredictable. But this high volatility doesn't always work out well. Even slight market movements can have a considerable impact on the price of gold and result in significant losses.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.
Gold stocks are shares of the individual companies involved in gold prospecting or mining for various precious metals. With this type of investment, you are buying into the gold mining business and not the spot price of precious metals. While there is a high degree of correlation between the two, your profits are based on how well the company does over the short and long term with this method.
Gold stocks are considered to be very volatile. However, if you understand how the stock market works and possess the analytics skills needed, this could be a good option.
How to Buy Gold Online in 3 Steps
Buying gold online allows convenient exposure to its performance in your portfolio. Here are the detailed steps:
Step 1: Develop a Gold Investment Strategy
Carefully research the different ways to invest in gold outlined in this article. Consider factors like your preferred level of risk, investment goals, costs involved, tax implications, account minimums, trading requirements and liquidity needs. Use the insights on gold returns, inflation protection, and monetary policy influence to inform your strategy. Will you hold long-term or trade short-term fluctuations?
With a clear understanding of your risk profile and objectives, you can select the most suitable gold investment approach and specific products.
Step 2: Open an Account with a Suitable Broker
Research and choose a reputable online brokerage offering gold investment products identified in your strategy. Evaluate criteria like regulation, fees, platform usability, and account funding options.
Open an account by completing the broker's online application process and funding your account as per their requirements. Get familiar with using their trading platform or app.
Step 3: Make Your Initial Gold Purchase
Login to your brokerage account via the website or mobile app.
Locate the gold investment products you want to purchase based on your strategy.
Enter the ticker symbol or other identifiers to find the product page.
Select "Buy" and place a limit or market order specifying the quantity/contract value.
Review the order and submit the transaction.
When Buying Gold is a Good Idea?
There are several scenarios where buying gold is a good idea.
Gold as a Safe Haven
Gold has been considered a good store of value for many years. It can’t be printed like money, and its value is not subject to interest rates decisions enforced by the government. Because it has a long record of maintaining value over time, gold serves as a type of insurance against adverse economic events.
During times of a financial crisis, gold prices generally rise. So, if there’s a financial crisis or a recession coming, it can be a great time to buy gold. However, it’s worth noting that, historically, in periods of high inflation, gold prices can drop.
Long-Term Savings
Over the long term, gold is considered a good place to put your money.
Gold Performance
Speculative Trends
Gold is a highly liquid market that means it can be traded easily. Read more how much gold to hold in the TU article.
What Affects the Price of Gold?
The price of gold is affected by several factors, like supply and demand, investor behavior, and global monetary policy. Here are some of the main factors:
Monetary Policy
Each country's monetary policy has some sort of impact on the prices of all stocks, commodities, and bonds. Even though we tend to view gold and silver as precious metals, essentially, they are traded as commodities. Therefore, all monetary policies have effects on the gold and silver markets. If you're wondering whether you should buy gold or silver in 2024, read the Traders Union article.
For example, during Quantitative Easing (QE) programs — like the ones used after the US 2008 subprime mortgage crisis — gold tends to go up in price.
Fast forward to today and the response to the COVID-19 pandemic. Governments across the world have again implemented QE programs.
Additionally, super low or even negative interest rates worldwide are hurting savers. Gold can provide a great alternative.
Jewelry Industry Demand
A large amount of the supply and demand for gold comes from the jewelry industry. In countries such as India and China, which have a combined population of around 2.8 billion people, gold is extremely popular. If demand surges in these markets, the price is pushed higher.
Central Bank Purchases
Central banks are some of the biggest market movers of gold prices. If foreign exchange reserves are plentiful and the economy is healthy, central banks frequently decide to reduce their gold holdings. This decision is because holding gold doesn’t generate a return, unlike money or bonds.
One big issue for banks is that the time they need to sell gold coincides with the times that other investors aren’t interested in gold. Therefore, central banks are always on the losing side of the gold trade. When they put gold on the market during times of low demand, the cost of gold goes down. If you want to know what the average return on gold is, read the Traders Union article.
Summary
Gold is an excellent store of value and is considered by many experts to be a safe haven in times of economic crisis. However, it is also a highly liquid market that can be traded as futures and CFDs. If you want to invest in gold, you have lots of options online, like buying gold itself, buying financial instruments that are based on the price of gold, or investing in companies that hold or produce gold. Each method has its own pluses and minuses that will suit different investors based on their goals and appetite for risk.
Vuk stands at the forefront of financial journalism, blending over six years of crypto investing experience with profound insights gained from navigating two bull/bear cycles. A dedicated content writer, Vuk has contributed to a myriad of publications and projects. His journey from an English language graduate to a sought-after voice in finance reflects his passion for demystifying complex financial concepts, making him a helpful guide for both newcomers and seasoned investors.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.
Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.
