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Gold - Trading with commodities

  • Post category:Commodities
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Gold belongs to the commodity category of precious metals. Investing in gold is therefore considered an insurance against inflation. Trading in commodities began in Roman times, when gold was still used as a currency.

In the meantime, a lot has changed in commodity trading, precious metals like gold are hardly traded in physical form anymore, but as futures or CFDs. Especially gold CFDs are gaining importance in commodities trading. In the digital age, commodity trading takes place predominantly online. Gold CFDs can be traded on the Internet with just a few clicks.

What are the uses for gold?

As precious and limited commodities, precious metals have always been highly valued. Even in ancient times, precious metals served as currencies and formed the basis for asset accumulation.

The largest share of global gold demand comes from the investment sector, at around 1,700 tons per year. This includes investments by small investors in the form of gold bars and coins. But large banks and gold-backed funds also have a high demand for gold.

Valuable gold jewelry is used as a bride price in many countries of the world and often represents the basic capital for the establishment of their own household. Jewelry made from this precious metal is considered to retain its value. Unique pieces as well as individually made gold jewelry can even increase in value over time. The demand for gold from the jewelry industry accounts for a relatively high proportion and amounts to approximately 1400 tons annually.

A significantly smaller share of gold demand comes from industry. Here, demand only amounts to about 300 tons per year. Central banks also do not buy as much gold as many people think. Here, the annual demand is about 270 tons, but this can change depending on political will.

How big are the deposits of gold and where are they located?

The precious metal with the striking yellowish shimmering color is not available in unlimited quantities. In the continental earth's crust, the proportion of gold is said to be only about 4 grams per 1,000 tons of rock (source: Wikipedia, as of August 2021). Mostly, the gold deposits occur in metallic, elemental form.

In 2020, around 43 percent of the world's mined gold came from gold deposits in China, Australia, the USA, the Russian Federation and Canada. Further gold reserves are located in South Africa, where the world's deepest gold mines are also to be found. In southern Africa, the precious metal is mined around 4,000 meters below the earth's surface.

Gold deposits usually also contain relatively high proportions of silver and platinum. For this reason, gold mines are also producers of silver and platinum.

Top 10 countries with the largest suspected gold deposits:

The largest gold deposits are believed to be in Australia by far. Here, experts estimate that there are still around 10,000 tons in the ground. Russia also has very high gold deposits with an estimated 7,500 tons. However, these figures are not final. With the rising price of gold, further reserves can be tapped and economically extracted.

What are the factors influencing the gold price?

The current price of gold is influenced by various factors. Basically, the price of the precious metal is based on its weight and is traded on the financial markets in ounces (28.35 g). Supply and demand, political and economic developments have a great influence on the development of the gold price.

Twice a day, the benchmark for physical gold is determined on the London Bullion Market by six major banks, taking into account the market situation. The factors that have a direct impact on the gold price are divided into long-term, medium-term and short-term components.

Economic growth in the major industrialized nations as well as on a global level is among the key long-term factors that have a major influence on the development of the gold price. Although economic or geopolitical crises can lead to massive strategic gold purchases or sales, these only influence the gold value in the short term.

Similar to other markets, the market situation on the gold market develops from supply and demand. The gold price development is therefore closely linked to economic developments. An important demand sector is industry. Gold is used in many electrical goods and semiconductors. However, while demand from industry accounts for only a small share of global gold demand, there are other factors that are more decisive.

The jewelry industry is a major factor in the price of gold. Especially the demand from China and India plays a major role in the world market. Investors therefore look specifically at the purchases of these two nations and the demand there has a direct influence on the gold price.

Underestimated, but still an important factor in gold demand are the central banks. Central banks are among the biggest buyers on the gold market. Especially the Chinese central bank, but also the ECB and the FED have bought large amounts of gold in recent years. In addition to the central banks, however, normal investors and investment banks also buy gold. Even though demand here is driven by other factors such as interest rates and inflation.

In addition to economic and political aspects, the influence of the environment on the gold price should not be underestimated. Since gold reserves are not infinite and climate change will also play a greater role in the future, it can be assumed that the value of commodities such as gold will continue to rise.

Does seasonality have an impact on gold?

The price of gold is subject to seasonal fluctuations similar to the price of many other commodities. In the case of gold, seasonality is determined by fluctuations in demand for gold jewelry and coins. The reason for this are various celebrations in different countries around the world, where traditionally gold jewelry, gold bars or gold coins are given as gifts.

The Indian wedding season, which takes place in the winter months, has a major impact on gold development, as the dowry for the bride in the South Asian country consists largely of gold jewelry. In China, gold coins are presented as good luck charms on the occasion of the national holiday on October 1. For the jewelry retail trade in the Western industrialized nations, the weeks leading up to Christmas are the most important phase of the year.

Around 70 percent of annual sales are generated in this sector in December. Since art smiths and mints increasingly purchase gold as a raw material before the start of important festivities, rising gold prices can be observed as early as mid-June.

Gold forecast: How will the gold price develop until 2025?

Since the development of gold prices depends on various factors, it is not easy to make a reliable gold forecast. Crises and exceptional situations have often led to falling gold prices in the past. Price increases always occurred when the economy recovered from a low and investors' interest in precious metals increased.

Experts also expect an expansion of gold production in the near future, as gold prices are currently significantly higher than production costs. Even though it is difficult to make reliable statements about the development of the gold price up to the year 2025, experts from various countries assume that demand will remain high.


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Risk note Plus500: 82% of CFD retail investor accounts lose money.

Maximum in gold production reached?

The amount of gold in the earth is very limited. Some researchers assume that we have already exceeded the maximum amount of gold that can be extracted and speak of so-called peak gold.

As you can see in our chart, annual gold production has risen sharply in recent years. This is partly due to the fact that the price of gold has risen sharply. Should the gold production not be able to be increased further, then an increasing demand could lead to strongly increasing prices.

How to trade gold?

Nowadays, investments in gold are mostly made in the form of CFDs or shares. While investments in gold bars or gold coins were common in the past, modern forms of investment are now preferred when trading commodities.

Bullion gold must contain a certain amount of refined metallic gold and must also meet certain standard conditions in terms of production and labeling. Since gold bullion is recommended to be stored in a bank safe or locker for security reasons, this form of gold investment constantly incurs costs.

Gold coins and gold jewelry are also a direct form of gold ownership. With this variant, storage costs must also be calculated in. In addition, valuable pieces of gold jewelry are usually insured to cover them in the event of loss or theft. However, the insurance premium that has to be paid regularly represents a further cost factor. In addition, experience has shown that gold in physical form is more difficult to sell.

Those who want to invest in gold often opt for gold-based exchange-traded funds (ETFs) or derivative financial instruments such as the gold CFDs. The ETF is a mutual fund traded on the stock exchange. In this regard, ETFs can include different assets such as commodities, stocks or bonds. However, since the prices reflect the gold price only in the short term and can diverge over time, this form of investment is an option with some risk.

Trade gold with CFDs

Commodities can be traded by investing in gold CFDs. The term CFD means Contract for Difference. The CFD is one of the derivative financial instruments whose value and performance are derived from several underlying assets. CFD trading involves speculating on rising or falling prices of international financial markets or individual financial products. CFD trading allows trading with margin.

In CFD trading, no underlying assets are acquired, but security margins are deposited with the broker. Trading on margin is one of the main advantages of CFD trading, because it allows trading with "leverage". Due to legal regulations, CFD trading for private investors is offered exclusively without margin requirements. This ensures that in the event of a loss no more than the invested capital can be lost, while proceeds from contracts for differences are attributed to the investor.

Which are exciting gold stocks?

Royal Gold

The US precious metals group is listed on NASDAQ and holds interests in 40 producing gold mines. It also grants mining concessions to mine operators and helps them finance their projects. The mid-tier precious metals company became known for its innovative business model that generates profit increases almost every year. Due to the large diversification, which includes participations in mines worldwide, the Royal Gold share should also be interesting for conservative investors.

Argonaut Gold

Argonaut is a Canadian-based company. Founded in 2007, the mining company focuses on exploration and gold mine development in Mexico. Listed on the stock exchange since September 2007, Argonaut shares are now also listed on the Toronto Stock Exchange. According to the company's own statements, production capacities are to be further increased in the coming years. This could also increase the value of Argonaut Gold shares.

Advantages of trading with gold CFDs

Online, it is possible to start trading CFDs with a small minimum deposit. Since the CFD is a speculative financial product, a certain risk tolerance is required on the one hand, on the other hand, higher profits can be achieved with the CFD than with conservative forms of investment. On the other hand, however, there is always the risk of total loss if you do not know what you are doing!

Risk note Plus500: 82% of CFD retail investor accounts lose money.

Plus500 risk note: CFD are complex instruments and come with the high risk of losing money quickly because of the leverage effect. 82% of retail investor accounts lose money trading CFDs with this provider. You should consider whether you understand how CFD work and whether you can afford to take the high risk of losing your money.