Insight into the market! Why has spot gold become a popular choice for traders?

Gold, a symbol of wealth with a long history, has a high recognition of global value. In the contemporary financial market, gold’s status is still solid, and its performance even surpasses the US dollar in some aspects. Spot gold, with its unique investment characteristics, has become a popular choice for global traders. It is not only a safe-haven asset, but also an investment vehicle that can bring considerable returns. In this article, EagleTrader will explain in detail why spot gold is so attractive to traders!

Spot gold trading

Spot gold refers to physical gold in the form of gold bars, gold coins or gold nuggets. Although it is called “spot”, in fact, most spot gold transactions do not involve physical gold delivery, but are bought and sold through electronic trading platforms to achieve capital transfer and settlement of profit and loss. Of course, some traders also choose physical delivery, but this is not mainstream.

Trading of spot gold is instant, and traders can buy and sell immediately after the transaction is completed without waiting for a certain point in the future.

The Attraction of Spot Gold

Two-way transaction

One ​​of the biggest features of spot gold trading is its two-way trading mechanism. Traders can go long when predicting gold prices to rise or short when predicting gold prices to fall. This flexibility ensures that traders have a chance to make a profit regardless of the market trend.

T+0 transaction

The spot gold market adopts the T+0 trading system, that is, the contracts bought on the same day can be sold on the same day. This trading method allows traders to respond to market changes immediately. Once they find a mistake in judgment or an unfavorable market trend, they can immediately close the position and exit and operate in reverse to recover the losses. This high degree of flexibility and timeliness greatly expands traders’ operating space and profit opportunities.

Global Sex Trading Market

The spot gold market is a global trading market, with a daily trading volume of up to tens of trillions of dollars. Such a huge transaction volume makes it difficult for any individual or institution to manipulate market trends. Therefore, price changes in the spot gold market are entirely determined by the supply and demand relationship, and are more suitable for technical analysis and fundamental analysis, with high transparency and fairness.

Deep motivation for spot gold to be sought after

1. Global economic risks are intensifying

At a time when the global economic landscape is becoming increasingly complex and changeable, market uncertainty has increased significantly. From the continuous impact of the aftermath of the epidemic, to the frequent occurrence of geopolitical conflicts, to the occasional risk events in the financial market, these series of factors have driven the rise in gold prices to varying degrees.

Especially due to the impact of the 2024 US presidential election, the uncertainty of the direction of monetary policy has further intensified, and the status of gold as a traditional safe-haven asset has been highlighted unprecedentedly. In addition, the continued Russian-Ukrainian conflict and the tension in the Middle East also provide additional upward momentum for the gold market.

2. Changes in currency value and increase in gold attraction

Changes in currency value have an important impact on the gold market. Typically, when monetary policies in major economies tend to be loose, such as market interest rates drop, this tends to reduce the opportunity cost of holding gold, because gold itself does not generate interest. In this case, gold’s attractiveness relative to other fixed-income products such as Treasury bonds will increase. In addition, low interest rates environments may also be for major currencies (For example, the US dollar (USD) puts pressure on further increasing the international appeal of gold denominated in this currency and attracting more non-USD currency holders to the gold market.

3. Global central bank gold holdings surge

The global central banks have significantly increased their gold reserves in recent years, with gold purchases reaching 1081 tons and 1037 tons in 2022 and 2023, respectively, setting a record high. This reflects the central bank’s strategy of pursuing reserve diversification and asset security amid economic uncertainty and monetary policy changes.

Although the People’s Bank of China suspended its share increase in May 2023, it is expected that based on the need to optimize the reserve structure and the internationalization of the RMB, the purchase of funds will still resume.

According to the World Gold Council’s CBGR survey, 29% of central banks intend to increase their holdings in gold in the next 12 months, the highest proportion since 2018, indicating that central banks’ gold purchases will continue to support the gold market.

Spot gold is extremely attractive to traders due to its unique value charm and current market environment impact. However, in the face of the challenges of long-term upward trends and short-term fluctuations, traders still need to remain vigilant, respond flexibly to market changes, and reasonably plan investment strategies to achieve a stable investment return.