INVESTMENT IN GOLD

Gold is denoted as ‘Au’ in chemistry as its Latin name of ‘Aurum’. And it is denoted by ‘XAU’, which is ISO standard code for 31.1034768 gram (troy ounce – oz t) of gold.

Gold is being traded on the basis of intraday spot prices. Futures and options (derivatives) can as well be traded in relevant exchanges worldwide. Gold ETFs (Exchange traded funds) are traded like company’s stocks in exchanges.

Some important factors that can affect gold price are shown below.

Demand and Supply

Around 70% of the total annual production of Gold is consumed for jewellery. 12% of total annual demand of the precious metal, gold is purchased by industries including Electronics, Dentistry, Medicine, Aerospace, Glass making, etc.

New gold mine discoveries affect gold price, as it is a possibility for more supply of the metal in to the market in future.

Central Bank Policies

Gold is used as an effective hedge against “inflation”. Central bank interest rate changes announcement can make variation in gold price. If interest rate goes up people expect more benefit from theirs savings and that diverts money into currency. And when interest rate decreases, they may purchase gold more, resulting in a price hike.

Always there is a forecast for such scheduled news. So news announcement effect is related to difference between forecast and announcement.

Stock Market

When the stock market declines, gold investors sell-off, for cash, to crop from equity investments later on higher side if they think it can be more priced, obeying there investments plans. Discounted price motivates the investor to enter to market.

Speculation

Traders think about gold as quick money making instrument. Speculators trade in futures and option to take advantage from future expected price changes in a disproportional way of profit. Price of gold and dollar are correlated negatively. As dollar becomes weaker gold becomes more valuable and price increases.

Risks

Changes in required margin or the money needed to trade in futures market is one of the exchange related risks.

On high volatile movement of commodity prices in either direction exchange may halt the trading.

Volatility

Trend of gold tracking is not easy. Gold market is highly volatile. Investors in gold who entered market by late seventies of 20^th century had to wait around three decades to see net profit in the same. Gold price depends up on factors like, international financial systems mutual relations, natural disasters etc.

Price Manipulation

Purposeful controlling of market direction, distorting price balancing, can be called as market manipulation which can affect investor confidence and reliability in the market system.

For an example, in 2007, small mining companies shorted (selling without a bought position) gold, which resulted in price declining.

IT IS LIKE A MONETARY GAME TO TRADE WITH BINARY OPTIONS. BUT IT IS ALL OR NOTHING SOMETIMES. Click to go to...

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