If you are an Australian and in any way connected with the financial markets you cannot afford to ignore gold. And if you are a forex trader, bullion CFDs provide you an excellent hedging opportunity.
Australia is one of the biggest producers and exporters of gold and its financial markets are greatly affected by the price of gold. For many years now, the currency pair AUD/USD has been moving in tandem with the price of gold, which is also the underlying reference asset for bullion (gold) CFDs.
CFDs refer to contract for difference that allows investors to take advantage of fluctuations in price without actually owning an asset. As such, when you create positions in bullion CFDs, you do not actually own physical gold or silver but only the right to make a profit or loss when the price gold or silver moves favourably. As an investor you must know certain basic aspects that relate to the positions you take in bullion CFDs.
Gold and silver bullion CFDs have a strong connection with Forex CFDs because the trading position you take reflects your view on the price of the metal in relation to currency value. While most CFDs are related to the underlying reference instrument or asset, gold CFD mean that you are taking a view on the price of gold as well as the currency it deals against. If you create a long position in gold you are expecting the price of gold to go up. It automatically means that you are short on the US dollar. Similarly, short positions in gold CFDs mean that you are going long on USD.
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