Gold rushes, jewelry, wealth, investments – ever since it exists, humanity has been obsessed with gold. It is estimated that the first gold nuggets were found in 40,000 B.C. However, the Roman Empire were the first to use gold as a trading commodity. And even though we still use it as a trading commodity, we cannot turn a blind eye to the arising changes.
CFDs (Contract for difference) were officially introduced in the early 1990s. For those who don’t know exactly how CFD trading works, we are here to provide an explanation. In CFD trading, you can speculate the price of an asset without physically buying it or taking possession. In this case, the CFD is a contract between the buyer and the seller, the buyer paying the seller the Bid or Ask price.
However, as you probably already know, CFD trading can be very risky, that is why we will try to point your attention towards a few things that you should keep an eye on if you want to invest in gold CFDs.
1. Understand the market
As we have mentioned before, markets go up and down – always for a reason. Regardless of whether we talk about CFD trading or buying gold bars and coins, there is a lot you need to consider first. One of the most important aspects you need to understand is – what affects the price?
2. What influences price movements?
Regardless of what you want to invest in is, knowledge remains crucial.
Supply and demand
You probably remember the famous “sell me this pen” scene from “The Wolf of Wall Street”. Exactly! Supply and demand affect the price of all goods and services, and gold is no different.
Currency movement has an immense influence on gold prices, especially the U.S. dollar. The relation between the U.S. dollar and the gold prices is a long topic that requires your attention, but keep in mind that gold and the U.S. dollar go hand in hand. If the U.S. dollar goes down, the gold price goes up, and vice versa.
The interest rates
The interest rate can also cause a difference in the price. As we already mentioned, there is a strong connection between the gold price and the U.S. economy. Since it is often used as a hedge against economic and financial crises.
Political and economic turbulences
Economic statistics, such as the GDP growth, and especially that of the U.S., also influence the price of gold. In addition, political turbulence and time of panic also cause the price of gold to go up, as it functions as a safe-haven asset. Opposite to that, when economics and politics are stable – the price of gold will go down.
Investing in gold certainly requires a high level of knowledge on many topics. Researching is one of your most powerful tools. Once you understand how the market behaves and what influences the price, you should start looking for a winning and profitable strategy.
4. Finding a winning strategy
CFD trading definitely provides more freedom and opportunities. But it requires a lot of knowledge and practice before being able to actually make profitable trading deals. Invest with small amounts that will give you the opportunity to freely test each strategy until you find the one that will lead to a profit. Use resources such as technical analysis and general knowledge of the market in order to recognize the perfect moment for a profitable investment.