Nandik Barbhaiya, Head of E-commerce at Forextime, provides insight as to why investing in gold this year, and using the commodity as trading collateral could be beneficial to businesses worldwide. This insight comes ahead of a new partnership between FXTM and online gold trading platform, BullionVault, allowing traders to use gold as collateral.
The investment landscape is facing significant changes in 2017 on the back of an unpredictable and, at times, chaotic political environment in 2016. The extent of the repercussions of the ‘Leave’ vote in Britain’s EU referendum, Donald Trump’s victory in the U.S. Presidential election, and Matteo Renzi’s Italian referendum defeat all remain unclear at present, but a considerable impact worldwide on business and trading can be expected. Here, we look at alternative trading options for 2017 with a focus on gold investment.
Why go for gold?
Gold is often referred to as the “safe haven” for investors, due to its retention of value, rarity, and immunity to interest rate policies which can frequently be influenced by political and economic movements. As one of the oldest forms of currency, its simplicity and transparency as a commodity have clear longevity. Gold is a sensible option as part of a diversified portfolio.
Whilst the price of gold can be pushed up in times of uncertainty, its retention of value is consistent even if the markets are fluctuating. As a commodity, although it won’t eliminate potential for loss, it can help spread the risk, particularly if you are using gold as trading collateral that is utilised across several assets.
In times when the supply of artificial forms of money is virtually unrestricted, nothing is a more reliable source of purchasing power than gold, due to its rarity and an almost fixed quantity of growth (approximately 1.6% per annum).
The popularity of using gold as an alternative trading currency has grown in recent years, with many traders looking to it as a hedge against inflation and a stable storage of value. The trading method for gold is over the counter, which is a common form of trading in the Forex market, so combining the two in your portfolio makes sense in a number of ways.
As commodity trading online has grown in popularity, enabled by real time commodity quotes and live charting services, online gold trading allows the trader to benefit from the inherent characteristics of gold without physically owning it as such.
Why is 2017 the year to invest?
There are suggestions that emerging markets will be the best option for investment in 2017, given the growth seen in the Bovespa and MICEX, as well as gains in Peru, Thailand and Argentina. However, the changes unfolding in essentially sound economies lend themselves to favouring commodities with a consistently solid value, such as gold.
In a Trump administration gold could shine, certainly until his agenda becomes clearer, and since 2008 buying Euros to defend against the dollar’s decline has returned 47%, where gold investment has returned 131%. Post-Brexit, a ‘lower for longer’ strategy could be advisable as the outlook for growth is generally reduced – this could present an opportunity for investors to review their portfolio, and gold would be a sound inclusion.
Trading tips and why these will work in 2017
With demand for gold in November 2016 reaching its highest level since the end of 2011 due to steep price drops following Trump’s victory, trying to get ahead of the curve and utilising your investment in gold with your trading tactics in 2017 will be crucial.
This is where using an online trading platform can be beneficial as it enables the individual to buy and use your gold in as little as four steps and there is also no maximum limit, so buyers are able to utilise gold, partially, or in full, as collateral to trade in your trading account.
Contract for Difference or CFD trading[i], can also be effective in this context as a gold CFD is a theoretical order to buy or sell a certain amount of gold. As one of the most commonly traded and most liquid commodities, CFDs allow for manoeuvrability in the market. The profit that you make comes directly from the change in value in the commodity, so the key is find the right risk at the right time. Learning when not to trade is equally important as knowing when to trade.
Another option[ii] that has proved effective, not only with gold trading but across numerous markets, is trend versus index value analysis, with one of the main benefits being its simplicity. When the index value of your stock – gold, in this case – is above the trend, you want to own stocks because typically you will make money at this time. When trend is above the index value, you don’t want to own stocks. Since 1971, when in “buy” mode, gold went up at a compound annual rate of 16.8% and when in “don’t buy” mode, gold lost money at 2.8%, proving that a simple, sound approach can be as effective as any.
There is a high likelihood of similar political and economic turbulence in 2017, so diversifying your portfolio by going for the stability of gold will be an option worth taking.