A Guide to Investing in Gold Online

January 29, 2021 14:50 UTC
Reading time: 20 minutes

Trading gold dates back as far as the Roman Empire, when it was used as a currency. These days, it is primarily used for jewellery production and as a vehicle for investment with investors able to buy and sell gold online at the click of a button.

In this article, we will talk in depth about investing in gold, what influences its price, how you can trade gold online with Admiral Markets UK and much more!

The History of Gold

Gold is a commodity which has been highly sought after by the human race for centuries. Whilst the precious metal is used in commercial and industrial activities, such as in jewellery and mobile phones, it is also heavily speculated on by traders, hedge funds and even central banks.

However, the 'yellow metal' tends to attract most people during times of economic uncertainty when investing in gold increases. In fact, during these times of economic turmoil, the price of gold tends to increase as investors flock to this so called safe haven asset.

Gold's status as a safe haven asset dates back to the 1944 Bretton-Woods Agreement. As the US Federal Reserve was required to hold gold that was equal to 40% of the value of the US dollar, the bank accumulated nearly 75% of the world's gold. For this reason, the majority of developed countries agreed to fix their currencies against the US dollar hence why the dollar is the world's global currency.

According to the World Gold Council, in 2020 the United States still has the world's highest official amount of gold at around 8,133.5 tonnes, followed by Germany, Italy, France and Russia.

Depicted: Admiral Markets MetaTrader 5 - Gold Daily Chart. Date Range: 23 June 2016 - 28 January 2021. Date Captured: 28 January 2021. Past performance is not necessarily an indication of future performance.

How to Invest in Gold

When it comes to investing in gold, there are a variety of avenues available, in the following sections we will look at a few of these options and their respective advantages and disadvantages.

1. Invest in Gold Bullion or Coins

This involves buying the physical commodity, such as gold bars, gold coins or even jewellery. Traders would need to find other individuals willing to sell them their gold, have the money available to purchase the full value of it, pay to insure it and store it somewhere safely - which can be quite costly.

2. Gold Stocks

Another way of investing in gold is to do so indirectly by buying shares in a company engaged in the exploration or mining of gold. Investing in gold in this manner means that you do not need to worry about storing the physical commodity in your property or elsewhere. However, bear in mind that each method comes with its own pros and cons.

When the price of gold increases, companies involved in the gold trade naturally benefit from increased sales, meaning that their share value tends to be positively correlated with gold prices. The downside of buying gold stocks is that not all of them are capable of outperforming, or even matching, the price of the precious metal.

3. Gold ETFs

Gold Exchange-Traded Funds (ETFs) are another way of indirectly investing in gold. 

An ETF is a publicly listed fund which is designed to track the movement in price of an underlying asset, index or basket of stocks. Each gold ETF varies in how they track the value of this asset, they may invest heavily in the physical asset, hold shares in companies related to the industry, trade derivative instruments such as futures and options (which we will look at next) or do a mixture of these things.

A benefit of investing in gold ETFs is that it can provide instant diversification across a number of different instruments. Moreover, it is possible to purchase precious metal ETFs which not only allow investing in gold, but other precious metals such as silver. However, it should be noted that buying and selling ETFs will most likely incur a commission, whilst holding one will incur a small management fee. Moreover, some gold ETFs suffer from illiquidity, which impacts the ability to buy and sell them

4. Gold Futures

A futures contract is an agreement by one party to buy, or take delivery of, and another party to sell, a commodity like gold at a fixed date in the future. The first futures contract was written in 1851 for corn and was offered through the Chicago Board of Trade (CBOT) exchange.

Nowadays, trading gold futures contracts can be done through the Chicago Mercantile Exchange. However, futures contracts expire at certain dates which can be difficult if a trader wants to hold a long-term position. Trading futures contracts also requires a large sum of capital as the contract sizes tend to be quite large.

For example, gold trades in a size of 100 ounces per contract with every one point move the equivalent of $100. This means just buying one gold futures contracts (the lowest you can on the exchange) means a ten dollar move is equivalent to a $1,000 loss.

5. Gold Options

A gold options contract grants the buyer the right but not the obligation to buy or sell the underlying asset at a set price before or on a certain date in the future.

However, gold options trading contracts expire and their value changes depending on the volatility of the asset price and how close it is to expiring. In essence, the value of a gold options contract declines over time due to 'time decay'.

When investing in gold with options, users must have a minimum of $2,000 in their account, with a minimum $25,000 if day trading options, which is quite large for many traders.

6. Gold CFDs

Contracts For Difference (CFDs) allow traders to speculate on the price of an underlying asset, such as gold, and potentially profit from both rising and falling prices by going either long or short.

Trading gold CFDs means that the trader is never required to take ownership of the physical asset. Moreover, CFDs benefit from the use of leverage, which allows traders to access larger positions in the market with a smaller deposit.

CFDs also allow traders to hold a position for as long as they want, whether this is for minutes, days, weeks or months. However, it should be noted that CFDs are subject to swap fees, which is interest charged on a position held over night.

How Can I Start Investing in Gold?

If you want to start trading or investing in gold, then keep reading! We will provide some good gold trading tips in the following sections. The key to set you on your way towards successful trading is to ensure you have the right trading tools and products to trade properly.

1. Choose the Right Broker

For most people, investing in gold bars or gold bullion coins and storing them under the bed is just not practical or safe. However, as we have seen, there are other options out there for traders and investors, such as gold CFDs. By trading CFDs, the trader never owns any physical gold which means there are no issues in storage or security.

The most common gold CFD instrument to trade on is XAUUSD (whose symbol is just "gold"), which is gold priced against US dollars. With Admiral Markets, users can speculate on the price of gold, as well as on other related markets such as XAUAUD which is gold priced against the Australian dollar. Admiral Markets offer traders the ability to trade with a broker that offers the highest regulation, security and safety as possible. Other benefits include:

  • Trade and invest with a broker regulated by the UK's Financial Conduct Authority, the Australian Securities and Investments Commission, and Estonian Financial Supervisory Authority and Cyprus Securities and Exchange Commission.
  • Open multiple types of accounts such as a CFD (Contract for Difference) trading account to go long and short and potentially profit from rising and falling markets. Furthermore, access leverage of up to 1:500 for Professional clients and up to 1:30 for Retail clients. This means you can control a larger position with a smaller deposit.
  • Access the fastest and most secure trading platform in the world, MetaTrader, for Web, Windows, Mac, iOS and Android operating systems so you can trade on the go.
  • Trade and invest on multiple asset classes such as gold, indices, currencies, global shares and cryptocurrencies.

To start trading today, simply click on the banner below and you can start trading and investing in gold CFDs with zero commission and access all the features listed above!

2. Know Your Trading Hours

When choosing the best trading hours, traders are trying to find the times where the price of gold is more likely to move in a directional manner. This largely depends on the demand for gold at a specific point in time. We will explore the factors that affect the demand for gold further down the article.

However, you may be interested to know that with Admiral Markets you can trade and invest in gold nearly 24 hours a day, between 01:00 - 23:59 (Eastern European Time) Monday to Friday. Typically, the trading hours that offer the most movement can be found in the US trading session, which is between 16:30 - 23:00 (Eastern European Time) Monday to Friday.

This is because this is when the US stock market opens, which opens up the trading activity on other trading products such as gold options trading and trading gold futures, which are both discussed further down the article. This increased activity can be confirmed by looking at the Average True Range (ATR) indicator of the intraday price of gold. The ATR indicator averages the high and low range of a specific time period like a 1-hour chart, over a user-defined number of hours.

For example, the chart below shows the 1-hour chart of the price of gold with an ATR (8) - effectively measuring the average range of the last eight hourly time periods:

Depicted: Admiral Markets MetaTrader 5 - Gold H1 Chart. Date Range: 11 January 2021 - 28 January 2021. Date Captured: 28 January 2021. Past performance is not necessarily an indication of future performance.

In the price chart above of gold, the vertical lines represent one full trading day. You may notice the ATR (8) indicator tends to move higher towards the middle or latter part of the day which represents the US trading session. This level of analysis primarily helps those day trading gold. Ultimately, the trading hours that you choose will depend on what type of trading strategy you will be using.

3. Use a Trading Strategy

A trading strategy helps traders to analyse the price of gold for any clues on where the market could move next. As there are so many ways to analyse a market, having a list of rules is essential in being disciplined consistently over a period of time. Some of the many ways to analyse the price of gold include:

  • Fundamental Analysis. This is the study of economic data and sentiment regarding the gold market. For example, in times of economic uncertainty gold prices tend to rise due to its status as a safe haven asset. Advanced traders will attempt to analyse changing world economics to try and position themselves early on in a potential move higher in the price of gold.
  • Technical Analysis. This is the study of price to identify possible entry and exit levels. The study of price generally comes down to using chart patterns, price action and technical trading indicators. This will be demonstrated in more detail in the trading strategy section further down the article.

As we move on to explore the factors that affect the price of gold and how to trade it with Admiral Markets using a simple trading strategy, it may be useful to open your Admiral Markets trading platform to follow through on the trading examples on the price of gold in the next section.

Trade With the MetaTrader 5 Trading Platform

If you haven't yet downloaded your trading platform you can download MetaTrader 5 completely free with Admiral Markets! You will also get access to a host of other benefits such as the ability to trade on other commodity markets, currencies, indices or shares, as well as access a wide variety of free technical trading indicators. Click the banner below to get started today:

What Affects the Price of Gold?

There are many different factors which influence the price of gold, which should be considered when investing. Many of these factors can change over time, however, some of the major influences include:

  • Geopolitical Uncertainty
    • During times of global economic unrest gold tends to perform well as investing in gold increases due to its safe haven status. For example, in 2020, during the economic turmoil caused by the coronavirus pandemic, gold prices surged to historical highs.
  • Interest Rates
    • Many traders and investors use the financial markets in search for a 'monetary return' on their capital. In times of rising interest rates, the attraction of gold becomes diminishes as investors can get a better return in other asset classes which benefit from rising interest rates, such as currencies or bonds.
  • Global Economic Data
    • As gold is perceived as a safe haven asset, any significant changes in global economic data can have an affect on the demand for gold. For example, if the global economy is not growing then investors will fear a slowdown could be around the corner and may choose to exit higher risk investments such as equities in favour for investing in safe haven assets such as gold.
  • The US Dollar
    • Currency movements in the US dollar can have a big impact on the price of gold. This is because gold is denominated in US dollars. Therefore, a falling US dollar can push gold prices higher and vice versa.

All of these influences are a form of fundamental analysis which can be difficult to analyse. Many traders choose to wait for the fundamental picture to unfold as this will be evident on the price chart of gold through rising or falling prices. Using a combination of these forms of analysis can be powerful but also depends on the individual trader's style: whether they are investing in gold for the long-term or just trading it short-term.

Choosing a style can be important as it can dictate how you invest in gold and trade it. While we have briefly mentioned using gold CFDs, there are other ways to invest in gold as we explore in the next section.

A Gold Trading Strategy

A common question is: is gold a good investment? The gold market is ideal for nearly all different types of strategies such as day trading, swing trading, position trading and more. Day trading gold is popular due to the fact that the gold market is open nearly 24 hours a day, five days a week - making it one of the most liquid markets to trade on.

However, as the price of gold is affected by a variety of factors such as geopolitical tensions, the US dollar and interest rates, the price action of gold can be quite volatile. In fact, the price of gold can often exhibit multiple types of market conditions in a short period of time such as an uptrend, a downtrend and a sideways ranging market.

This is why some traders use technical indicators such as Bollinger bands in their trading strategy. Bollinger bands are used to identify markets which are quiet, and often moving sideways, as well as markets that are showing increased volatility and are about to trend in a certain direction.

The Bollinger band tool itself is comprised of three lines. The middle line is a 20-day Simple Moving Average (SMA) and is used to calculate the value of the upper and lower bands. These bands are two standard deviations away from the 20-day simple moving average (SMA).

The Bollinger band indicator is free with the Admiral Markets MetaTrader trading platform. To insert the indicator, follow these steps:

  • Open your free Admiral Markets MetaTrader platform.
  • Find 'gold' in the Market Watch column (Ctrl+M). Drag and drop the symbol onto the chart.
  • Select Insert from the menu at the top of the trading platform, then Indicators -> Trend -> Bollinger bands, as shown below.

Once selected, the next box will show the default settings for the Bollinger bands. Press OK.

Now you will have the Bollinger bands plotted on the price of gold, as shown below on the 4-hour chart of gold:

Depicted: Admiral Markets MetaTrader 5 - Gold H4 Chart. Date Range: 2 June 2020 - 11 August 2020. Date Captured: 28 January 2021. Past performance is not necessarily an indication of future performance.

The Bollinger bands standard deviation is a measure of volatility and many rules around Bollinger bands focus on the price action around the upper and lower bands. In fact, as you'll see in the chart above, there are frequent price action rejections, or turning points in price, of the upper and lower Bollinger bands.

Depicted: Admiral Markets MetaTrader 5 - Gold H4 Chart. Date Range: 2 June 2020 - 11 August 2020. Date Captured: 28 January 2021. Past performance is not necessarily an indication of future performance.

The blue boxes show price rejections of the lower Bollinger band and the red boxes show price rejections of the upper Bollinger band. However, to be able to use an effective day trading gold strategy there needs to be another rule to help identify which band to focus on.

By using a moving average indicator as a trend filter traders can quickly determine what the trend of the market is which can then give more focus when using a day trading gold strategy. For example:

  • If price is above a long-term moving average such as the 200-period exponential moving average traders may only consider long, or buy, positions.
  • If price is below a long-term moving average such as the 200-period exponential moving average traders may only consider short, or sell, positions.

To plot a moving average on your chart simply click on Insert in the top menu in your trading platform, then Indicators -> Trend -> Moving Average. Once this is selected, the following box will show:

Select 200 for Period, Exponential for Method and the colour of your choice (blue in this instance). Now the long-term 200-period exponential moving average will be shown on your gold trading price chart:

Depicted: Admiral Markets MetaTrader 5 - Gold H4 Chart. Date Range: 2 June 2020 - 11 August 2020. Date Captured: 28 January 2021. Past performance is not necessarily an indication of future performance.

In this instance, the price of gold has stayed above the moving average, meaning that buyers are in control. Therefore, traders may only consider trading the rejection of the lower Bollinger band which in this case are the yellow boxes in the chart above. These highlight some interesting day trading strategy setups as the trading price of gold did indeed reject the lower Bollinger band in the direction of the long-term 200-period moving average in most cases.

To learn how to trade in more detail and master placing your orders on the MetaTrader 5 trading platform click on the video below:

Of course, there will be occasions where your chosen trading rules will be less effective and result in losing trades. This is why risk management and using a stop loss will prove to be beneficial in the long run. They can help to minimise risk in order to have enough capital to trade with on the next trade. After all, trading is about managing probabilities and winning and losing is part of that process.

It is also important to remember that any strategies that have been discussed have not been tested historically for its effectiveness, it merely serves as a starting point to build upon. Traders can take this one step further by experimenting with different moving average values, learning additional price action patterns in the Admiral Markets Educational library and adjusting the timeframes.

In fact, you can also use advanced online trading tools and indicators with the Admiral Markets Supreme Edition plugin which offers traders the ability to significantly enhance their trading experience. With this exclusive, yet free, plugin you can gain access to additional features such as the correlation matrix, the latest real-time market data and insights from professional trading experts and other fantastic tools. Get all of this and much more by clicking the banner below and starting your free download!

Why Trade With Admiral Markets?

There are a variety of benefits to trading with Admiral Markets, including:

  • Trade 24 hours a day, five days a week on a wide range of asset classes.
  • Trade with a well-established, highly regulated company including regulation from the highly respected UK's Financial Conduct Authority, the Australian Securities and Investments Commission, and Estonian Financial Supervisory Authority and Cyprus Securities and Exchange Commission.
  • Trade on margin. Retail traders can trade leverage positions that are up to 30 times their account balance (depending on the instrument). A professional trader can trade positions 500 times their account balance (If you would like to learn more, make sure to check out Admiral Markets 'Retail & Professional Terms').
  • Benefit from negative balance protection policy for peace of mind.
  • Access the MetaTrader trading platform for Windows, Mac, Web, Android and iOS operating systems. This means you can have your very own gold trading app to buy and sell gold CFDs!
  • Access the Admiral Markets MetaTrader Supreme Edition plugin for advanced trading tools such as the Sentiment Trader and Advanced Order functionality completely free!
  • Minimum account opening just 100 EUR, GBP, USD or CHF!
  • Trade gold with spreads of just 16-22 pips!
  • Trade gold with zero commission! You only pay the spread and swap for any overnight positions.

Trade Risk-Free With an Admiral Markets Demo Account

If you would like to test drive some of the exclusive Admiral Markets trading features listed above, then why not try a FREE demo trading account? This allows you to trade in a risk-free environment until you are ready for a live trading account. To open your free demo account, simply click the banner below:

About Admiral Markets

Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5 Start trading today!

This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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