How to Make Money Trading Gold | StoneX

For more than 5,000 years, gold has been a mode of exchange, an artistic medium, and a store of wealth. Although the yellow metal’s primary functions have evolved over time, one thing is for sure: Gold has never been worthless.

In contemporary finance, bullion remains a coveted asset. However, the way that gold is bought and sold within the modern marketplace has changed. In this blog article, we’ll cover a few ways in which people from all walks of life make money trading gold.

The Ultimate Store of Value

You’re likely aware of gold’s value, but where does the value come from? What makes gold different from nickel, steel, or lead? The answers to these questions boil down to three primary factors:

• Scarcity: Found at 0.004 parts per million in the earth’s crust, gold (Au) is hard to find. In addition, most known stores have already been mined, making new production both expensive and time-consuming.
• Utility: Its inherent malleability, ductility, and luster make gold extremely useful. A few of its most common applications are as an electrical conductor, in artwork, and in jewelry.
• Tradition: Perhaps the largest driver of gold’s value is human psychology. Historically, gold has always had value, which makes people view acquiring it as an ideal way of preserving wealth.

So how can you profit from trading gold as a store of value? The answer lies in adopting a longer-term investment horizon and benefiting from appreciating prices. Here are two ways in which you can accomplish these goals:

• Physical gold: The most traditional way of making money with gold is to buy physical bullion and hold it until prices go up. Although not overly technical, this approach works well as a hedge against inflation and the pitfalls of fiat currency.
• Futures and options: Another way of taking an intermediate to long-term approach to buying gold is through deferred-month CME futures and options contracts. The CME offers a collection of gold-related products, including many with expiration dates listed years in advance. You can benefit from appreciating gold over time by buying gold futures outright or purchasing call options.

In addition to recognizing gold’s worth, it’s also important to acknowledge bullion’s role as a currency. For a vast majority of the world’s citizens, the monetary system is a function of paper money. However, for central banks, governments, and various institutions, gold acts as a mode of exchange. Although retail gold trading operations do not profit from these transactions, they are critical to the availability and pricing of bullion.

Gold Is a Psychological Market

Although gold is a viable long-term safe-haven asset, its short-term price fluctuations can be extreme. Trader and investor psychology drives evolving price action, which is influenced by any number of external factors. Typically, when the markets are anxious, gold appreciates in value, and prices retrace when they are calm.

A great example of gold’s volatility occurred during the coronavirus (COVID-19) market panic of March 2020. As the world’s markets attempted to price-in the impact of a COVID-19 economic shutdown, gold experienced acute volatility. At first, prices crashed as the USD posted a furious rally, and then bullion staged a comeback as market participants acknowledged its long-term value.

The beauty of gold futures and options is that you can make money from either rising or falling prices. During March 2020,  some market participants profited by trading gold by employing various scalping, day, or swing strategies. Key events such as emergency Fed rate cuts, the daily Wall Street equities open and close, and timely COVID-19 announcements all drove heavy participation. The result was steady order flow, robust market depth, and consistent volatility―the ideal conditions for efficient, profitable trading.

Want to Learn More About Gold?

During periods of “risk-on” or “risk-off” market sentiment, there is money to be made trading gold. By taking value-oriented bullish positions in CME futures and options—or via short-term strategies designed to capitalize on volatility—every trader can get something from gold.