Spread betting allows you to speculate on the price of gold without owning the underlying market. In this article, I’ll explore spread betting gold in detail and explore how you can take advantage of these price movements.
What Is Gold Spread Betting?
Making a spread bet on gold means you are betting on the value of gold rising or falling. If a trader’s bet is successful and has speculated correctly on the direction of the trade, the number of points differences is multiplied by the stake made.
Spread betting was designed to allow you to speculate on gold markets without owning the value itself. So rather than physically purchasing and storing gold bullion (which was not realistic for many investors), people could bet on the price movement, a far simpler alternative. With this success, derivatives available for spread betting expanded to cover most financial markets.
Historically, gold has been used as a currency and a store of value for thousands of years and is the most popular of the four primary precious metals to invest in. In fact, its popularity as an investment asset is one of the reasons gold was the chosen instrument when spread betting was initially introduced.
Gold Price Movements and Quotes
If you have experience spread betting currency pairs, understanding how gold is quoted and how the price moves is very straightforward.
In gold spread betting, a one-point move in gold is a $1 price movement in the underlying asset. This means if the price of gold moves from $1,850.00 to $1,860.00, it would be a 10-point rally.
Similar to betting on a currency pair, gold is quoted with the USD as a base currency like you’d see EUR/USD quoted. The ticker (quote) for gold is XAU/USD, which translates to AU as the chemical symbol for gold, and X is code for one troy ounce (the size of gold quoted on the markets).
The reason USD is the cross pair is that most transactions of gold are made in USD. XAU/USD is simply the exchange rate of how much USD would be needed to purchase 1 oz of gold.
Why Spread Bet Gold?
Gold spread betting allows you to bet on one of the rarest precious metals in the world without owning the commodity. Precious metals like gold, silver, palladium and platinum are popular due to the fact that people have confidence in their value which can be attributed to factors such as rarity and usefulness. Most of all they are corrosion-resistant meaning they last a long time (if not forever).
By using spread betting as a derivative to speculate on the price movements of gold, you can enjoy benefits (provided you are not a professional bettor) like the exemption on stamp duty and capital gains tax while avoiding currency exchange fees.
For example, gold is pegged to the US dollar (XAU/USD), which means you’d have to convert your GBP to USD to purchase gold normally with traditional methods or CFDs. By converting it to USD, you would be exposed to currency risk, meaning if the USD strengthens, the conversion value back into GBP would be less. Whereas with spread betting, you’ll be placing your bets in GBP only, so you will not be impacted by the exchange fees (to convert to USD) or the currency risk exposure.
Along with the benefits of spread betting derivatives, there are other reasons you’d want to spread bet gold.
Firstly, by betting on gold, you do not have to hold the asset, meaning you don’t have to store it – this is a costly process unless you plan to own the gold long-term.
Secondly, since you do not own the gold itself, it is a better option for frequent and short-term betting. Since spread betting is a derivative of gold prices, you can bet on the price moving up or down (going long or short), something you cannot do with traditional investing in gold.
You can even bet on gold as a hedge against inflation because when inflationary measures weaken the USD, investors rotate their funds to gold as it is a real asset with intrinsic value. Additionally, spread bettors and investors would rotate into gold when the markets switch from a risk-on to risk-off bias, usually when economic data or geo-political instability causes global concern.
One last reason that may make gold attractive is if you like to trade commodity-based currency pairs or stocks that mine gold, you can use gold to hedge these assets. For example, if AUD/USD were declining, but you’ve built a profitable position buying AUD, shorting gold would be a good idea due to its positive correlation with AUD/USD.
As you can see from the image above, I have overlaid the price of gold with AUD/USD to demonstrate its correlation.
Other Precious Metals
Gold isn’t the only precious metal you can spread bet on. Below, I’ve highlighted the other precious metals:
Silver is another popular precious metal that moves similarly to gold and has the ticker XAG/USD. When you spread bet silver, the movement value is $1, which equates to a one-point move (like gold). Silver is also used to hedge against inflation or when markets fall.
Palladium is a rare metal used for catalytic converters in high demand from the automobile industry. Although palladium isn’t as famous as gold and silver, it is the most expensive asset of the metals. The ticker for Palladium is XPD/USD, and the point movement value of Palladium is $1.
Platinum (ticker: XPT/USD) is another highly valued precious metal used in catalytic converters and in high-end electrical devices and jewellery. Similarly, it is also used as a hedge against inflation and financial market downturns and in spread betting, has a similar point movement value ($1 per 1 point).
Other precious metals
Other precious metals include Ruthenium, Rhodium, Iridium, and Osmium however these are not or rarely available in derivatives markets. For this reason, they are not considered ‘primary’ precious metals.
Is Copper a precious metal?
While copper is a metal and does have value, it is not considered precious since it oxidises (decays) when exposed to moist air. Copper also isn’t rare, its availability makes it a more economical choice compared to precious metals in the electrical and construction industry.
Who Trades Precious Metals?
Retail Traders (spread bettors) bet on precious metals to speculate on the betting market direction without having to own the underlying asset or buy and hold the asset.
Institutional investors (hedge funds, funds/ETFs, pension funds) use strategies involving precious metals and would acquire gold itself or buy into companies that also profit off the price of gold. This gives you indirect exposure to gold.
Central banks buy gold as foreign exchange reserves and buy or sell based on how they manage the reserves.
Gold Mining companies will buy futures to hedge against the change in price from when they mine to when they sell it.
How To Trade Gold and Other Precious Metals?
Betting on gold is relatively simple, and all spread betting companies offer a gold market, making it easily accessible.
You can spread bet on gold and other precious metals in different currencies, and each is impacted slightly differently. You will find that the most common currency to bet on precious metals is the USD, and depending on which platform you are using, you may see the ticker of gold and other precious metals differently.
If you trade using MT4/MT5, then you will see the precious metals as tickers, which are:
Whereas on proprietary platforms like the one IG has, they make it easier for you by labelling the assets by their names. TradingView uses the combination of the name and the ticket symbol.
Load up your favourite platform:
As gold is a popular commodity to spread bet, all spread betting platforms have access to gold markets. I like to use the MetaTrader 4 platform as it allows me to completely customise my platform and use my custom indicators to pick out potential trade ideas.
Do your research:
Gold is sensitive to technical and fundamental analysis, so it is essential to understand the current economic policies affecting the price of gold before implementing your trading strategy.
For example, suppose the world economies are in an inflationary period. In that case, it makes no sense to look for short positions in gold while using technical analysis, as these positions have a lower chance of success because the overall data points to gold moving up.
Enter the position:
Once you have researched and found an opportunity to bet, the next step is to place a bet based on the analysis.
Placing a bet on spread betting platforms is similar; you just open a betting ticket and input your bet details.
Manage the bet:
Gold is a volatile asset and can quickly move up and down a few points within minutes, so it’s a good idea to keep an eye on it. Alternatively, you could place a stop loss and a take profit, and these orders will automatically close your trade if the market reaches the prices you set. If the market reaches your stop loss, it will close your position in a loss; if it reaches your take profit, your bet will close in a profit.
Closing the bet:
If you are in a profitable position and happy with the current profit, you can exit the trade manually by pressing the “close trade” button on your spread betting platform.
Best Brokers for Spread Betting Precious Metals
Pepperstone – best overall spread betting broker
We highly rate Pepperstone as a broker because it provides fast execution speeds, low spreads, a solid range of spread betting markets, and the largest selections of spread betting platforms. If you want to spread bet using TradingView with low spreads, then Pepperstone will be an ideal choice for you.
City Index – Great Spread Betting With GSLO
City Index stands out for its range of markets and its web trader that provides guaranteed stop-loss orders on gold markets. This provides an extra layer of risk management and ensures that you will not suffer from slippage during volatile movements.
IG Group – best for the widest range of precious metals
IG Group is our top pick if you want to trade the complete range of precious metals. You can trade all the precious metals on IG and 17,000 other markets. The broker also has low minimum spreads and offers trading tools like AutoChartist that scans the metals markets to find up-and-coming trading ideas based on pattern recognition software. You can also trade options, interest rates, bonds and sectors.
FXCM – Good MetaTrader 4 Spread Betting Platform
If you want to automate your spread bets on using Expert Advisors (EAs) on MetaTrader 4, then FXCM is a solid choice. Spreads start from 0.78 pips (and have no commissions) helping keep your trading costs in check and scalping and hedging is permitted allowing for a better range of trading strategies.
The broker also provides Capitalise.ai, which is a no-code automation tool, so if you are a beginner and want to automate your bets – this is the easiest solution. Other solutions include FXCMs in-house developed trading platform, Trading Station. With this platform, you can perform some automation via their Forex Strategy Optimization to locate ideal input combinations or Forex Strategy Backtesting, or use APIs like FIX API, Java API or Forexconnect API.
FxPro – Best Spread Bet Trading App
FxPro boasts an excellent mobile app called FxEdge, and it has 50+ technical indicators, 15 time frames, and sentiment analysis tools made available. This range of tools is excellent if you want an app that makes trading easy while you are on the move, making FxPro our top choice for mobile trading app. One advantage of FXPro is that selected currency pairs are available as fixed spreads rather than variable spreads.
OANDA – best for spread betting beginners
OANDA is our top pick for beginners as it offers an excellent range of tools on its OANDA Trade platform to help you learn the ropes of trading gold. One feature we like is that it allows you to set up a “trade default” setting, which asks you to set your default order size, stop loss and take profit levels (plus others).
This feature is excellent for beginners as they can pre-program the spread bets so you will enter the market with the same orders each time because it is easy to forget to add a stop loss or accidentally place a smaller or larger stake size than intended. At least by using this feature, you can simplify your trading workflow (and prevent mistakes) so you can focus on analysing the markets. OANDA Trade also includes a guaranteed stop loss order for risk management.
In addition to OANDA Trade, you can also spread betting using MT4 and TradingView. Spreads with OANDA have no commissions and start from 0.8 pips.
CMC Markets – Good Spread Bet Broker For Forex Trading
If you also intend to bet on the forex markets, then CMC Markets will be an excellent choice for you because it has 330+ different currency pairs to bet on which is the most of all brokers. CMC Markets has spread betting via their NGEN trading platform which comes with advanced charts and a guaranteed stop loss order.
Spreadex – Best Sports And Finance Spread Bets
Spreadex stands out in this list because it’s one of the only brokers in the UK to offer sports and financial spread bets. The broker has low spreads, a decent selection of markets to bet on, and the platform is excellent. If you want the option to switch between betting on football or spread betting on gold, then SpreadEx is our top choice.
Spread Betting on Currency Pairs
You can diversify your spread betting with gold and forex markets, allowing you to take advantage of highly liquid markets, especially as both react nicely to fundamental and technical analysis. If you are an intraday trader, then both markets would be ideal for you.
Why Spread Bet on Forex?
The forex market is the largest market you can spread bet on and has a daily volume of over $7.5 trillion exchanged daily. This presents you with an abundance of potential trading opportunities each day. Below, I’ll go through some of the top reasons why you may want to spread bet forex:
24/5 trading hours
The currency markets are open 24 hours per day, five nights a week, opening on Sunday evenings and closing on Friday evenings. If you have 9-5 work commitments, you can trade in the evening through the New York trading session. Allowing you to trade later in the evening makes spread betting more accessible, unlike the stock markets, which close at 16:30 UK time.
Access to the majors with low spreads
Most spread betting brokers provide low spreads that are competitive (or better) than forex brokers that offer CFDs. However, they cannot compete with ECN-style brokers who offer tight spreads from 0.0 pips with small commissions.
No commission on trades
A Spread betting firm offers accounts that only charge a spread, which is the difference between the bid/ask price used to enter the markets. This means they do not charge a commission to use their services, which is a major plus. All of the trading costs are built into the spread, and it’s a one-off fee when you enter the markets.
Spread betting is attractive if you want to reduce your trading costs because spread betting is categorised as a gambling product by the Financial Conduct Authority (FCA). This means you do not have to pay stamp duty or capital gains tax on your spread bet profits.
No exchange rate fee
Because spread betting is based in GBP, you do not have to worry about converting your money into a different currency should you trade forex or international assets. For example, if you buy US shares in NVIDIA, the broker will charge you a conversion fee that converts your GBP into USD, then use the USD to buy the NVIDIA shares. With spread betting, you just place your stake on NVIDIA in GBP, saving on extra fees and further reducing your trading costs.
Forex Spread Betting Calculator
CompareForexBrokers has developed its spread betting calculator that you can use to calculate your profit/loss of a spread bet without needing a spread betting account or trading platform. You can access the spread betting calculator here.