CFDs stand for Contract for Difference- a type of derivative financial trading instrument. When engaging in CFD trading, one pays a fraction of the actual value of some commodity or asset, to own the right to run predictions over the rise or fall in the price of that asset in the future. It is worth noting that you will not own the asset itself for the duration for which you are running CFD trade on it.
Why conduct CFD Trade in Gold?
Trading Gold CFD is a very interesting affair from the perspective of investments and predictions. Gold is a precious metal that has been gradually rising in value for about 10 years, due to several global economic events. The statistics show that the annual growth rate for gold has been a staggering 21.9 percent in the past recent years. Considered a safe investment all over, gold holds its status due to its rare and finite resource features. It facilitates one of the highest volumes of trade in the world. It yields high profits and has many uses too. Therefore gold as an asset is considered to be a good investment in both times of inflation and deflation, as well as a beneficial portfolio diversifier.
According to available data, gold has the largest market share in the world of trading, valued at about 7.3 trillion dollars. Daily, approximately 70 billion dollars worth of gold is traded.
How to conduct CFD Gold trading?
When buying a Contract for a Difference in Gold trade, you have to pay a fraction of the value of an asset like physical gold, mining shares of gold, or financial instruments like ETFs, futures, or options, to own the right to earn a profit or incur loss upon the result of that person’s predictions regarding the change in the price of that asset over time. If that person believes that the price will rise, he can ‘go long’ or hold onto the asset, or if he feels the value will drop, he can sell off the contract and ‘go short’. That is, the more the value of the Gold increases, the more will the profit increase. Of course, there is no ownership or right to the original asset.
Factors that are Creating a Bullish Trend in Gold Prices:
The current trend shows the XAU/USD trading at $1817.75, which is already a 0.43% hike in the session. For people who want to have a clearer context, gold is rising at around 20% a year-to-day, with already a 300-dollar rise since January this year. Both the technical and fundamental pictures surrounding the metal are bullish, and this bullish sentiment will continue its rise to 1900$, 2000$, and even reach multi-year highs of 3000$ according to certain banks.
The factors that are channeling such a bullish sentiment for the metal are its safe haven and risk aversion as well as an appetite during a perfect economic storm initiated by the pandemic.
A Safe Haven and Risk Aversion:
The risk aversion property reinforces the traditional safe-haven status of gold, as any bad news in the market stokes its status.
Risk Appetite:
Any good news will spark risk appetite and create a prolific uptrend because of gold’s regime change and becoming an inflation-hedge asset.
Conclusion:
Due to the COVID-19 pandemic, the economic machine has encountered a hard time in India. People all over are in dire need of a stable economic solution. If one considers financial trading at this time, especially in CFD, which rewards predictability, gold can be a very steady asset. With the trend of skyrocketing gold value through time, it can be a very lucrative option for CFD trading.
