Reveal the secret! Why has spot gold become a favorite among traders?

Reveal the secret! Why has spot gold become a favorite among traders?

Gold, as a symbol of wealth with a long history, is widely recognized worldwide. Not only was it regarded as a reliable currency in travel in ancient times, but in the contemporary financial market, gold’s status is still as solid as a rock, even more stable than the US dollar.

However, the attractiveness of gold is not limited to its own value charm. Spot gold, with its unique investment characteristics, has become a popular choice for traders around the world. It is not only a safe-haven asset, but also an investment vehicle that can bring considerable returns. In this article, let’s take a closer look at why spot gold is so attractive to traders!

Spot gold trading

Spot gold, simply put, 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.

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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.

Leverage Principle

Spot gold trading uses the principle of leverage, allowing traders to control larger transactions with a smaller amount of funds. For example, when the margin ratio is 1:100, you only need to invest 1% of the funds as margin to trade the equivalent of the full amount of gold. This greatly improves capital utilization, but also magnifies potential risks. Therefore, when enjoying the high returns brought by leverage, traders must operate with caution and control their positions reasonably.

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 provides traders with more operational space and 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.

Long transaction service time

Now the spot gold market covers almost all major financial centers around the world’s trading hours. Starting from Sydney, passing through Tokyo, London, and to New York, the market runs almost uninterruptedly. From 6:01 am to 4:59 am the next day, the total transaction can be 23 hours, and the remaining 1 hour is the settlement time. This all-weather trading mechanism provides more investment opportunities and flexibility. No matter where you are or when you have free time, you can participate in the spot gold market to find investment opportunities.

The 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 as the 2024 US presidential election approaches, 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. The Fed’s expectation of interest rate cuts has increased

One ​​of the core drivers of gold prices’ continued rise since the beginning of the year, stemming from the strong expectations of the Federal Reserve’s upcoming interest rate cuts. The interest rate cut is expected to cut the real interest rate level of the US dollar, thus significantly enhancing the attractiveness of gold as an interest-free safe-haven asset. Given that the current US CPI has stabilized and approached the 2% inflation target set by the Federal Reserve, the market generally predicts that a rate cut window will arrive in September, which undoubtedly lays a solid cornerstone for the rise in gold prices.

3. Changes in currency value and increase in gold attraction

The realization of the Fed’s expectation of interest rate cuts will directly lead to lower market interest rates, thereby reducing the opportunity cost of traders holding gold, making gold more attractive than fixed income products such as US Treasury bonds. At the same time, low interest rate environment often puts pressure on the US dollar, further increasing the international appeal of gold denominated in US dollars and attracting more holders of non-US dollar currencies to flock to the gold market.

IV. Global central bank gold holdings boom

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.

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The future trend of spot gold

Spot gold is bullish for a long time, but short-term fluctuations need to be vigilant

In the current global economic and political context, spot gold prices are expected to continue to be supported, showing a long-term upward trend. Global central banks’ promotion of “de-dollarization”, geopolitical tensions, and the shift in the Federal Reserve’s monetary policy have all enhanced the attractiveness of gold as a safe-haven asset. Especially with the end of the US dollar interest rate hike cycle, the heating of interest rate cut expectations may further drive gold prices to rise in the second half of the year.

But in the short term, gold prices may face large fluctuations. Changes in market expectations about Fed policy and the possible over-risk phenomenon of gold prices may aggravate short-term volatility. While expecting long-term rises, traders should pay close attention to market trends and adjust their positions in a timely manner to avoid potential risks.

To sum up, 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.