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Trading Spot Gold and Silver
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The prices of spot metals are affected by many global economic and political factors, making these assets popular with traders looking to profit from movements in a wide range of markets.
Hedge against inflation
One of the most common descriptions of gold and silver as an investment is as a hedge against inflation. The thinking is that as the decrease in buying power affects currencies, owning gold is one way to hedge against the value of your wealth decreasing. Unlike a currency, an amount of gold will continue to maintain its value no matter what the inflation rate is.
Alternative to the US Dollar
Gold and silver is also used as a hedge against the US dollar when the reserve currency comes under pressure.
A "safe-haven" investment
Another view of gold is as a "safe-haven" investment. During times of high volatility and risk, investors often move funds to gold as a way to safeguard against uncertainty.
Understanding economic and political factors
Macroeconomic indicators, such as the unemployment rate and Gross Domestic Product (GDP) shed light on the strength of an economy, and influence the attractiveness of gold to investors, and therefore its price.
Political events can also have a significant impact on the price of gold. If uncertainty arises over conflict or instability in region, this will affect the perceived safety of investment in a country's bonds or currency, and investors may choose to move funds into gold or cash. If this instability affects a region that is a significant player in the oil or commodity markets, these prices will also be affected, and might have a carry-over effect into the gold markets, pulling or pushing the price of gold further.
Typically the spot gold market is somewhat volatile, and prices are susceptible to short-term fluctuations that do not necessarily follow a long-term trend. It is important to understand the risks associated with trading volatile markets before opening spot metal positions.
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