As a currency that dates back to 600 BC, Gold has elevated itself as the most sought-after asset in the history of trading. In the olden days, trading gold requires buying and selling the gold metal itself in the form of minted gold coins, gold bars or gold jewelries. However, thanks to the introduction of futures, options and Gold exchange-traded funds (ETFs), investors and traders now engage in gold trading similar to buying and selling stocks.

Thinking of trading gold with eToro?

77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.

History of Gold

The origin of the gold as an element or metal material, is thought to have come from the collision of neutron stars and a supernova nucleosynthesis.

Understanding the origin of gold in the universe would require a whole semester of learning it. However, we are only here to know about the history of Gold as a currency.

Therefore, we go back to the late Paleolithic period circa 40,000 BC when the first traces of gold have been unearthed inside some caves in Spain.

When it comes to monetary use, Gold was minted as coins in Lydia, Asia Minor around 600 BC. The 'talent'—a unit of weight used in Mesopotamia in ancient times—of a gold back then (coinciding during the lifetime of Homer) weighs between 8.42 to 8.75 grams.

Gold bars
Gold bars

Gold bills became gold certificates used for trading and as a gold standard money in the 19h century. This powered the global industrial industry. Gold mining spread throughout the world in the 19th century thus spawning several "gold rush" sites. The most famous of which was the 1848 California Gold Rush, which gave birth to the American West.

Following World War II, gold trading adapted a system of convertible currencies adhering to the Bretton Woods System, which set a fixed price of the gold at $35 per ounce. This "gold standard" ended in 1971 and was then replaced by the introduction of the first gold futures contract in 1974 at the floor of the COMEX exchange in New York.

Since then, the price of Gold keeps on soaring quintupling by value in 2001 and reaching an all-time high of $2,089.20 per ounce in August 2020.

Gold Options for Trading

Before starting to trade gold, it is important to take note of how Gold gives investors with these different options:

  1. Gold Bullion: Yhis refers to physical gold, usually in the form of gold minted coins or gold bars.
  2. Gold Certificates: This can be compared to cash banknotes that originated in the 17th century which signifies ownership of gold.
  3. Gold Futures: This is traded on various exchange platforms as a micro or gold futures contract that is agreed on a fixed value. This trading option additional leverage than trading with physical gold. Its returns are dependent always on the fluctuations in value between the contract start and expiry.
  4. Gold CFDs: This is an option to trade short-term orders of gold to buy or sell at a fixed gold value. Returns earned from trading gold CFDs always depend on the change in value during the contract.
  5. Gold ETFs: Gold ETFs or gold exchanged-traded funds is bought from a stock exchange or a broker. This allow investors to purchase a pool of commodities, securities without needing to buy all individual assets. The value is low, but the cost of the ETF is related to the price of gold.
  6. Gold Swaps: These are custom contracts transacted OTC (over-the-counter).

Factors to Consider When Trading Gold

To start trading or investing on Gold, you need to have a basic understanding of the main factors that affects the price of gold.

  1. Supply and Demand: The gold market is driven by two key areas: investment accounts and jewelry production with the former amounting to 40%. Always consult the gold daily price charts to check whether gold demand is going up or down. Remember that if the demand goes up and supply of gold goes down, the value of gold rises while if the supply increases and demand for gold decreases, the price of gold will go down.
  2. Market Volatility: Real-time gold trading is also related to the over-all performance of the stock market. When the stock's value goes down, investors turns to gold but when the stock market performs well, gold trading volumes goes down.
  3. Geopolitical Setting: The value of gold can also be impacted by different economic and political situations around the world.

Trading Gold via CFDs

Many investors are trading via Contracts for Difference (CFD) and by using this method to trade gold, investors can speculate on the value of gold without needing to own a physical gold.

Gold trading on eToro's platform
Gold trading on eToro's platform

How to Start CFD Trading of Gold?

There are several ways of engaging in CFD trading of gold. All you need to do is find a reliable broker or CFD trading platform such as eToro to open an account and deposit your fund.

Trading gold in eToro's CFD trading platform doesn't require any storage fees since you won't be trading any physical gold.

How to Trade Gold in eToro?

  1. Create an account on eToro or log-in your account for existing users.
    eToro web-based platform
    eToro web-based platform
  2. Click "Discover".
    Clicking "Discover" on eToro
    Clicking "Discover" on eToro
  3. Select "Commodities".
    Selecting Commodities on eToro's platform
    Selecting Commodities on eToro's platform
  4. Choose "GOLD".
    Looking for GOLD on eToro's list of commodities
    Looking for GOLD on eToro's list of commodities
  5. Select BUY or SELL.
    Buying or selling gold in eToro
    Buying or selling gold in eToro
  6. Key in your desired amount to invest or the number of gold units you want to trade.
    Entering amount to invest on GOLD via eToro
    Entering amount to invest on GOLD via eToro
  7. Review and set the stop loss, leverage, and take profit parameters.
    Reviewing stop-loss, leverage and take profit on gold CFD trade
    Reviewing stop-loss, leverage and take profit on gold CFD trade
  8. Select "Open Trade".
    Executing GOLD buy order on eToro
    Executing GOLD buy order on eToro

Important Gold Trading Tips

Many seasoned investors believe that the rules of forex trading also apply to gold trading. This includes being cautious about committing over-leverage and the importance of assessing risk management, setting targets and knowing when to stop. These are some important tips to remember when trading gold:

  • Always keep track of the US Dollar performance and other leading world currencies in relation to the value of gold. The movement of world currency market can affect the value of gold.
  • Keep track of the demand for gold jewelry.
  • Watch out always for the industrial and commercial demand for gold.
  • Apply a combination of technical, fundamental and sentimental analysis when studying the gold market.
  • Monitor Central Bank activities when it comes to buying and selling gold. An increase in the purchase of gold by a central bank often cause an incoming increase in the price of this precious metal.
  • Study Real Interest rates. Gold has been proven to exhibit correlation with real interest rates, when gold value increases just as interest rates starts decreasing or prices of gold dropping when interest rates rises.

Is Investing on Gold a Wise Decision?

Yes. Because even though gold is considered a volatile asset in the short term, it has historically maintained its high value for a long time. Throughout the past decades and even century, gold trading has provided a hedge against massive inflation and the erosion of the world's major currencies, therefore making it as a solid asset to invest on.

Ready to trade gold with eToro?

eToro is a multi-asset platform which offers both investing in stocks and cryptoassets, as well as trading CFDs.

Please note that CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 77% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Past performance is not an indication of future results. Trading history presented is less than 5 complete years and may not suffice as basis for investment decision.

Copy Trading does not amount to investment advice. The value of your investments may go up or down. Your capital is at risk.

Cryptoasset investing is highly volatile and unregulated in some EU countries. No consumer protection. Tax on profits may apply.

eToro USA LLC does not offer CFDs and makes no representation and assumes no liability as to the accuracy or completeness of the content of this publication, which has been prepared by our partner utilizing publicly available non-entity specific information about eToro.

77% of retail investor accounts lose money when trading CFDs with this provider You should consider whether you can afford to take the high risk of losing your money.