Gold Trading Or Gold Investing? It Really Depends On Your Type
Gold trading price has risen from $300 per ounce to $1400 per ounce since 2000. Unlike silver, gold has little industrial value. So the strongest factor driving the rise in gold trading price is none other than investment demand. In other words, people are buying gold to be locked away. In fact, most owners has not seen any of the gold they bought – it is either in the form of paper gold like Gold ETFs or the physical gold they bought are usually locked in a vault below ground. So have you ever wondered why gold trading price actually quadrupled over this century despite that fact that gold is not used or admired by most people? The answer may be found in the gold investor and not so much about the gold trading price.
Gold Trading Or Gold Investing – The 3 Types Of Investors
Therefore to understand what is driving gold trading price is to understand who are these people or gold investors and what are their motivations. There are basically 3 types of gold investors:
1. The “Gold Profiteers”
The first group of investors are the ones who invest for pure potential profits. Their main objective is to buy low and sell high. They usually use technical analysis or other tools to help them determine the best gold trading price to enter and exit their trades. Some of these investors may also do gold trading with currency trading. For example, if there is a negative correlation between the U.S dollars and gold, an investor may buy gold and sell the dollar or vice versa. The proliferation of gold ETFs and ease of gold trading using the internet has seen an increase in gold trading volume and transactions done by this group of investors, or rather gold traders.
2. The “Gold Holders”
The second group of gold investors invest in gold when the objective to create wealth for his retirement and leave to their heirs. This group of investors are buying gold not through the use of profits to create more but mainly using the profits they make in other investments and hold them in gold as they view gold as a safer asset to own. They recognized that gold is a good store of wealth that will retain its value over time. This group of investors are not so conerned about the fluctuations in gold trading price. More often than not, they hold their gold out of reach of financial institutions and government.
Many in this group of investors usually come from Eastern Europe, where years of communist rule, corruption, frequent change of government has made they to distrust their government and drive to attain self-sufficiency. This group of investors hold to their belief that gold is the real money and more people around the world are beginning to think this way too.
3. The Government
The third group and possibly the largest group is the government. Governments around the world, especially in emerging markets like China and India are buying gold, store in their reserves on a permanent basis with no profit in mind. Their main objective in buying gold is to keep them as a protection in the event their currencies drop in value or as a hedge for their foreign currency holdings. Most governments are looking for stability in their financial system and gold helps them to achieve that. Despite the demolition of gold standard and wide use of fiat currency, gold is still highly respected and valued as the real money. Therefore, central banks are persistently buying gold irrespective of the gold trading price. To them, it is not about gold per se but all about the use of gold as the real money that is trusted internationally by people and other governments worldwide. In fact, central banks are now either holder or buyers of gold.
The main reason is of course gold is the only money that can be trusted in a crisis – it is an international asset. It is not controlled by any individual or groups of countries. It is free of other government, that’s why governments like it!
To learn more about the gold market, read Buying Gold And The Biggest Myths About The Gold Market