Spread Betting Gold
Spread betting began in the early 1970s with city traders taking bets on the price of gold, and this remains (along with oil) the most popular commodity for spread betters. In fact some of the biggest bets taken out are on gold and over the years traders who have called it correctly have made large fortunes. Gold is a rare commodity which can't be manufactured. As well as having industrial uses it is highly desired for its appearance, particularly amongst the growing middle classes of China and india. Scarcity and high demand ensure that the price of gold will never crash and this makes it an appealing commodity to trade.
Gold is considered a safe haven for money when there is financial or political turmoil. Currencies and shares can plummet but gold will always be in demand. It tends to move in the opposite direction to the dollar. Thus when the dollar sinks the price of gold rises and when the economy is in good shape and the dollar strengthens the price of gold weakens. Gold is therefore not such a good investment in a strong economy and unlikely to pay you a dividend or interest during this time.
Why Spread Bet Gold?
- You can bet on weaknesses in the dollar without risking exchange rate fluctuations
- When you spread bet you don't have to find a place to store the gold
- There is a 24 hour world market
- The market is liquid so spreads are thinner than most commodities
- The leveraged effect of spread betting means you can trade more than you would normally be able to buy
- Due to its popularity there's a lot of information freely available
Gold Spread Betting approaches
Gold differs from other commodities in that it is accumulated rather than consumed. About 2,500 tons are mined each year and it is not consumed in the same way as oil or coffee. For this reason gold behaves more like a currency and so the technical indicators that a foreign exchange trader might use such as RSI (relative strength index) and moving averages can be applied to gold with good results. Therefore, if you are interested in gold spread betting it's worth taking some time out to study a bit about currency trading.
The biggest driver of gold prices in the medium and long term is the trend of the US dollar. When the dollar is in a rising trend relative to other currencies then that is a good indicator that gold will be in a downward trend. The relationship between the dollar and Swiss Franc has the best correlation to gold prices.
The gold price is also affected by geo-political events. When there is increased tension between superpowers or threats of a regional conflict there is a flight from stocks towards gold. Thus spread betting on gold in the medium term can be a way of betting on world politics. If you keep an eye on global events and are able to make intelligent and informed predictions about the state of the world, then these could be converted into profit by spread betting on the gold market. You should also keep an eye on world stock markets, as faltering markets provide another indicator of a flight to gold. Be aware though that in some cases a flourishing economy can lead to higher gold prices: for instance in India, where increased wealth led to higher demand for gold as it is highly prized as a sign of wealth.
Gold betting resources
- Kitco Live gold data
Live quotes or world gold prices with charts - Gold Market Reports
Latest reports and analysis of the trends in the gold market - Gold Price - Technical Indicators and Forecast
Forecasts of future movements in the gold price based on technical analysis of the charts
Where can I spread bet gold?
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