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Australia is well-known for its gold rushes in the mid-1800s. Throughout the decades, many prospectors, traders, and businessmen have found flecks of gold all over Australia, and gold has a great impact on the country’s national identity. 

Today, Gold is one of the most exported commodities in Australia. These Gold exports mainly head towards the United Kingdom, Switzerland, and the United States. As of 2020, the gold export market was worth over $17.1 billion AU.

If you are eager to start trading CFDs in Australia, why not speculate on the price of gold?

Is it Legal to Trade Gold CFDs in Australia?

Before we dive into how you can trade Gold CFDs in Australia, we want to start off by saying that it is legal to do so. The Australian Securities and Investment Commission (ASIC) oversees all trading done in the country. Ensure the broker you work with is ASIC-regulated, and you will have nothing to worry about.

Why Trade CFDs?

There are great reasons as to why some traders prefer to buy and sell CFDs instead of physical assets.

A CFD stands for Contract for Difference, and it is a financial derivative that allows traders to speculate on the price movement of an underlying asset. In doing so, they get to potentially make a profit. CFDs are contracts, which means they have an expiration date.

Traders can utilize leverage when they buy a contract. This means they can pay a small deposit at the outset of opening a position and gain exposure to a much larger one. When their predictions are correct, they will gain profits based on the full position size of their trade. When they are wrong, however, they also suffer losses based on the full position size of their trade.

CFDs are also compatible with traders who prefer flexibility. As traders speculate on price movements of underlying assets instead of purchasing the actual asset, traders can find opportunities in both bullish and bearish markets. They can go long or short depending on the direction they think the market will go. This creates an extra level of flexibility that traditional commodity trading does not accommodate.

What Moves Gold Prices?

If you are interested in trading Gold CFDs, you must understand what moves gold prices so you can make more accurate market speculations. Below are some examples:

Supply and Demand

The most obvious driver of gold prices – and in fact, of all instruments in the financial market – is supply and demand. If demand is higher than supply, then gold prices go up. If supply is higher than demand, gold prices go down.

However, it begs the question: what influences supply and demand? We take a closer look.

• Production

People obtain gold through mining. When mining companies fail to find spots that contain gold, they fail to produce the optimal supply of gold. This causes the supply to dip. Another reason production dips are due to natural disasters, global pandemics, and politics. When workers go on strike, for example, they slow down or completely halt production. However, demand on the other end may not lower accordingly. In this case, supply is much lower than demand, and the price of gold rises.

• Jewelry Demand

Of course, gold is a precious metal, and a lot of it is used to make jewelry such as bracelets, necklaces, and watches. When jewelry demand is high and there is no change in supply levels, it drives the price up as well. Times when jewelry demand is high can include wedding season, post-pandemic when people are dressing up again, and during the holidays – when there are plenty of parties for wealthy people to attend.

• The Value of the US Dollar

It may be Australia with the gold mines, but the US dollar’s value has a hefty influence on the price of gold. This is because gold is pegged to the value of the US dollar inversely. In other words, the precious metal is dollar-denominated. When the US dollar strengthens, the price of gold is likely to be more stable and lower. When the US dollar weakens, the price of gold is likely to be more volatile and higher.

• Monetary Policies

Monetary policies also play a huge role in gold prices. These include interest rates. Interest rates can influence investors as through ‘opportunity cost’. ‘Opportunity cost’ is the concept of giving up one gain in anticipation of a bigger one down the line. When interest rates decrease, many traders may turn to gold as a haven, because other markets become too volatile for the retail trader’s liking.

Ways You Can Trade Gold CFDs

There are several ways you can speculate on the price of gold and gold-related stocks and bonds. For example, you can always speculate on the price movements of companies that are marginally related to gold, such as gold mining, production, and storage companies.

You can also speculate on the price movements of baskets of instruments that are related to gold. For example, there are plenty of ETFs and mutual funds that track companies and indices related to gold. With an ETF CFD, you can track multiple companies in the same sector, at the same time.

Alternatively, you can speculate on the price movements of the gold market with a CFD. This is arguably the most direct way of keeping track of gold prices.

How to Place Your First Gold CFDs

To trade Gold CFDs, you should follow these steps:

• Choose a Suitable Broker

When you choose a broker, you should ensure they are licensed by the ASIC, as mentioned above. You should also ensure that the broker offers transparent pricing and no hidden fees that could eat into your potential profits. Finally, you should ensure that the broker offers reliable customer service. When you have found a suitable broker for you, you can start opening an account with them.

• Find a Suitable CFD

Next, you should decide on the CFD you would like to trade. This can be any of the three types of CFDs as mentioned above – stock CFDs, ETF CFDs, and commodity CFDs. When you decide on the CFD to trade, you should make sure you know what kind of factors influence their price movements.

For example, how a company is performing will have a big impact on its stock price, whereas how the sector is performing is more important when you are trading an ETF CFD. Alternatively, when you are trading commodity CFDs, it is most important to pay attention to gold prices.

• Place Your Trade

Once you have settled on the CFD you would like to trade, you can decide if you would like to go long or short on your contract. If you believe the market is bullish, you should go long. If you believe the market is bearish, you should go short.

Risk Management Tips

You can lower your risk level by using risk management tools. Popular ones include stop and stop limit orders. You must set these when you enter the trade and not any later. It is also crucial that you have an exit point when you place your trade, and you must keep an eye on the markets to ensure that you can pull out quickly if things do not go as planned.

The Bottom Line

Australia has always been a big market for gold, and it is not surprising that Australians should want to trade Gold CFDs. If you are just starting out, you should make sure you do not invest more money than you can afford to lose. This is because there are no guarantees in trading. You can lose money and you can win money, and you should ensure you do not take unnecessary risks.