Why is GOLD a Popular Asset for Trading
A symbol of value and stability, gold is, one way or the other, the only form of money that survived in time. Many traders/people would argue today with this statement.
However, there’s no other metal or currency to store wealth in this world in the last seven thousand years. Although the gold standard doesn’t exist anymore since the Nixon’s administration breaking it in 1971, gold as a safe haven kept on existing.
With Forex brokerages facing stiff competition in the online trading arena, the need to give traders access to new markets became obvious. Commodities were the natural step forward, with every single Forex broker offering today access to the gold, silver, or oil market.
Therefore, we can say that a brokerage house in the twenty-first century is more than a currency broker. Instead, it offers traders the opportunity to invest and speculate on a variety of different markets, gold being just one of the most popular trading assets today.
Gold and Its Particularities
In Forex trading gold is known as the XAUUSD pair. The pair reflects the value of gold denominated in U.S. Dollars, as the USD is the world’s reserve currency under the present monetary and financial system.
Like any currency pair part of the Forex dashboard, the XAUUSD has two prices reflecting its changes: the bid and ask price. Whenever traders believe the price of gold is overvalued and want to speculate on the short site (i.e., selling), they “hit the bid,” or, go short. The bid price is used only for selling. Naturally, buying takes place from the ask price only.
Forex education courses dedicated to investing always have a part assigned to gold and its role in a portfolio. As a trading asset, gold is used both as a vehicle of speculation and as an element that ads long-term value and protection to a portfolio.
A trading asset with such a vast popularity cannot have low volatility. Instead, it moves depending on how the risk sentiment in financial markets moves, but also depending on the investors’ portfolio allocation.
Forex market traders have had the possibility to both speculate and invest in the gold market. As gold or the XAUUSD pair is part of any Forex trading account, scalping or swing trading are regular ways to profit from the gold’s market opportunities on the very short and short term.
Investors look at gold from a different perspective. For instance, even in 2018, gold had some fabulous performances in some portfolios.
For instance, against the USD, it held a neutral, somewhat bearish course. But against other fiat currencies that lost value this year, gold acted as a real store of value. A quick look at Venezuela, Argentina, Turkey, Russia or Brazil reveals their currencies suffered for the entire year. Crippled by higher inflation rates, the traditional, fiat currencies collapsed.
Gold instead rose. So next time when looking at the price of gold denominated in USD and seeing it stable, think of it as a reflection of the economic stance in the United States and the trust people have in the world’s reserve currency, the USD.
If that wouldn’t be the case, investors will flee for gold as the actual store of value that survived for millennia.