Why is gold considered a safe asset in times of economic uncertainty or even recession? Is it just a psychological factor?
The answer is much more complex and gold is still currently in the top 5 asset most sought after by investors around the world. In this article we will investigate the reasons behind the popularity and appreciation by investors of this commodity.
How do you invest in gold today?
Central banks hold gold as a reserve asset, and this is no accident, as gold is expected to hold constant value.
However, the time has passed when our grandparents stored gold objects in a safe place in the cupboard for "dark times". Technological progress has created various ways to trade gold: the liberalization of capital movements and the continuing modernization of the trading platforms of brokerage firms have made investing in gold incredibly simple.
A particularly interesting fact is that 27% of the total amount of gold is currently held as an investment! The physical metal is not responsible for much of the turnover of gold, as the latter is obtained through derivatives. In case you wonder why, the answer is simple: it is generally more cheaper and more convenient than others.
Trading CFDs with the underlying asset on gold
First, what is a CFD contract for difference? It is a financial derivative instrument, in which the investor does not own the underlying asset. It is basically an agreement between two parties, whereby any difference between a current price and a future price will be settled in cash.
Trading Contracts for Difference, Gold Backed CFDs, has many advantages. Much lower trading costs and high liquidity are two of the main advantages of gold-backed CFDs compared to physical gold. Gold CFD trading also offers investors the opportunity to open so-called "short" positions. The investor then has the option of short selling, at the moment, something he does not own, and will buy back the asset in the future at a better price. The price difference between the two times is marked as profit, even if the investor never actually owned the asset. By taking advantage of price falls, we protect our portfolio from risk.
It is also possible to do "hedging", ie we have the possibility to temporarily block the result of a transaction by opening two opposite positions (long/buy and short/sell) with the same volume. This way we protect our portfolio during times of unwanted fluctuations.
However, it is always important to keep in mind that CFD are derivative instruments and, as such, complex. The trading of these instruments involves the use of leverage, which allows you to use a percentage of the capital necessary to open a position on the traditional instrument, with the same exposure. However, just as the potential gains are amplified, the potential losses are also proportionally magnified and, every time you are trading on these instruments, there is a high probability of losing your money.
Securities with exposure to gold mining companies
Buying shares of gold mining companies is a more classic investment method.
Usually, buying stock in gold companies might be an even better idea than buying gold itself.
Instead, gold producers are highly dependent on the price of gold. There is often a significant positive correlation between the price of gold and various geopolitical factors.
Gold helps us diversify our portfolio
Diversification is an essential and recognized principle in economics. Diversification also makes the difference between investment success and failure.
The risk associated with each method or tool is dispersed when you obviously have multiple options.
While last year’s gold seemed to be overshadowed by "modern" assets such as cryptocurrencies, this year’s decline in digital currencies demonstrated the long-term "strength" of the oldest "safe haven" .
Always consider the risks
Any opinion, research, analysis, pricing or other information provided under the title of general market commentary does not constitute investment advice. Please note that historical information or research does not guarantee future performance or results. 81% of retail investor accounts lose money when trading CFDs with this provider. Therefore, it is always good to consider whether you can afford to take the high risk of losing your capital.
Original article published on Money.it Italy 2022-10-25 10:30:00.
Original title: Come iniziare a fare trading di oro online?
Argomenti
