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Top Gold Trading Tips and Strategies

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Gold Trading is one of the most popular investments in recent years due to ongoing changes in the global economy and the rise of Gold as one of the top financial instruments. Gold is a top commodity that is widely traded worldwide that derives its significant importance as a precious metal due to its cultural and financial value. It is one of the top metals traded in the commodities market. Trading in gold is one of the most popular forms of trading in ages, that has different forms, each is characterized by its own style and returns. 

Why Trade Gold

Like any investment, forex traders search for stable investments that can hedge against inflation, market volatility, and geopolitical factors affecting currency prices. That’s the main reason gold has been gaining more popularity over the years.

Gold trading is considered to be a good way to hedge against constant economic changes. For that, it represents a safe haven that provides consistency over time due to its resistance to the swings in valuation, unlike currencies.

The stability of the precious metal’s prices over time makes it an important asset during times of rising uncertainties like that we’re seeing today. The XAU/USD pair is the most popular pairings that forex brokers offer, making it easier than ever to incorporate gold as part of your forex trading strategy.

When the COVID-19 pandemic hardly hit the global economy, governments and savvy traders invested more money in gold as a hedge from high uncertainty and inflation. Especially that economic policies shifted towards printing more money which led to weaker global currencies, while the precious metal showed a notable resilience. 

Gold Vs Forex Trading

Gold is seen as a store of value, as it is not subject to the control of governments and central banks as currencies are. The yellow metal prices are not influenced directly by either fiscal or monetary policies and will always be worth something, while currencies can lose their value for inflation

It’s referred to as a safe haven, along with currencies like the Japanese Yen and the Swiss Franc. So, when traders are worried about evolving risks, they tend to buy haven assets. On the flip side, traders tend to generally sell haven assets when risk appetite rises, for stocks and other currencies with a higher interest rate. This makes gold an important hedge against inflation and a valuable asset.

Trading gold means you will have to monitor the movements of the US Dollar. For example, if the value of the US Dollar is increasing, that drives the price of the yellow metal lower. 

The Correlation between US dollar and Gold Prices - Gold Trading
The Correlation between US dollar and Gold Prices

An additional factor to consider when you step into the world of gold trading is market liquidity. It is being traded nearly 24 hours per day around the world. This implies higher liquidity around the clock although, as with the forex market, it can be relatively quiet after the US session closes, and lower volumes may lead to volatile price movements.

How Gold Trading Works

There are multiple forms of gold trading including: 

  • Bullions: It is the physical gold, usually in the form of bars or coins. The value of any bullion depends on its type and weight. Owning physical gold may seem the easiest form, but it requires transaction fees, storage costs, and possibly insurance.
  • Futures: They are basically contracts between buyers and sellers upon purchasing a quantity of gold at a predetermined price at a preset date. 
  • certificates: It is a document that represents ownership of a specified amount or value of gold instead of physical storing.
  • ETFs: Exchanged-traded funds, or ETFs, are made of assets that are backed by gold. They are similar to stocks. Their costs are low, but the value of the ETF is tied to the price of gold.
  • CFDs: Contracts for difference or CFDs are short-term orders to buy or sell a fixed amount of gold. Instead of buying physical gold, traders speculate on the price. CFDs have a set expiry and the return is determined by the change in the prices during the contract duration. 

What is the Difference between Trading and Investing in Gold?

TradingInvestment
Don’t own the asset Own physical forms
Speculate on the priceSpeculate on the value
Hedge against inflation and uncertainty  Hedge against inflation
Higher market exposure Lower market exposure
Take positions for shorter terms Focus on long-term returns

What affects Prices? 

Several factors determine the prices of gold, top factors include:

  1. Supply and Demand: like any commodity, prices are driven by forces of supply and demand.
  2. Market volatility: as a safe haven, prices tend to rise in times of high market volatility or uncertainty. 
  3. Value of US Dollar: since gold is priced by the US dollar, prices are inversely related to the value of the US dollar. So, when the value of the dollar rises, prices fall, and vice versa. 
  4. Central Banks Reserves: central banks tend to hold gold reserves as a means of hedging against inflation to protect the value of money reserves at times of market volatility. So, as central banks increase their gold reserves, prices usually get boosted. 
  5. Risk Appetite: as a hedging asset or safe haven, it is highly affected by risk appetite among investors. That’s why we see more gains in times of risk aversion, while prices fall on higher risk appetite. 
  6. Interest rates: due to its inverse relationship with gold, prices usually drops when rates rise.

Tips For Gold Trading

Here are some gold trading tips to be taken into account when trading the yellow metal:

  1. Watch the “risk on” and “risk off” modes.
  2. Monitor the performance of the US Dollar.
  3. Consider a mix of fundamental and technical price analysis.
  4. Keep up to date with geopolitical news. 
  5. Consider changes in supply and demand. 
  6. Monitor interest rates. 

How Professionals Trade Gold

Gold is a safe-haven asset that gains more value when investors seek an alternative asset to the depreciating currencies. In times of uncertainties, gold provides refuge to investors when currencies and stock market are unstable. This concept has provided gold a distinctive value in the financial market.

Despite being a commodity that is mainly controlled by forces of supply and demand, gold is affected by other fundamental factors. Especially that most of the world’s gold is held for investment purposes.

In order to trade gold like professional traders, here are several factors what to pay attention to:

The relationship between Gold, Inflation and Interest Rates

Fundamental analysis of the gold market is focused on central banks and monetary policies. Gold is being used as a hedge against inflation. So, any quantitative easing (QE)stimulus announcements have its influence on gold prices. Gold prices also have a direct relationship with inflation, the value of gold often rises when the cost-of-living increases. Inflation causes the value of savings to erode over time which increases the appeal for gold as a hedging asset.

Check the Complete Guide to Professional Forex Analysis

Interest rates also have a direct impact of the prices. While there is no direct a correlation between gold prices and interest rates, higher rates make gold less attractive to investors. This is because higher rates offer safer high returns compared to the gold market. However, gold and interest rates may sometimes move in the same direction.

Gold and Geopolitics

Gold is known as a crisis asset which retains its value through financial uncertainties and geopolitical instability. Gold prices hit a new record high the years following the financial crisis in 2008. In 2020, gold price edged higher as equity market was hit by the pandemic and lockdowns. In such troubled times when investors are skeptical about the forex or stock markets, gold shines.

Gold tends to be certain when other markets are uncertain.

Gold Trading From The Editor

Gold Market Technical Analysis

For short-term traders, moving averages and the crossover strategy is a common strategy. Moving average aims to smooth out historic price data, through calculating the average price over a certain period of time. Moving averages represent continuously calculated values that change constantly based on the average price changes in a set period of time. 

For instance, if we are using a 10-day moving average, the value then is the mean average of the price during the last 10 days. This value is variable and changes day by day, by discarding the oldest value in the data set and replacing it with the most recent value. 

Professional long-term gold investors usually analyze the long-term trend in gold prices by evaluating the weekly chart. By applying different analytical tools, you can determine if the price is likely to trend or remain in a range.

The moving average convergence divergence (MACD) index is a very useful in assessing the momentum for gold prices and determining buy/sell positions. The MACD also help in identify when the momentum is wanning or ready to accelerate.

Relative strength index (RSI) is also a momentum indicator that compares the average gain made when prices have risen over a set period of time providing an idea of whether gold is set to become overvalued or undervalued in the near future. The stochastic oscillator can be very helpful in gauging the momentum behind the price. For assessing price volatility, the average true range (ATR) assesses the volatility of a trend. That’s why it can be very useful in anticipating the direction of prices. Check more about trend analysis. Finally, the Bollinger bands acts an indicator for market sentiment. The indicator is used to show when prices are about to change direction or stay within a range.

Read our Beginner’s Guide to Forex Technical Analysis

Altogether, these indicators help traders identify the suitable entry and exit points for their gold trades for both short and long term.

Pros and Cons of Gold Trading

Trading gold is ideal for hedging against inflation. Unlike traditional currencies, it retains its purchasing power during inflation. Gold shines during periods of global instability, even as the price of other assets fall. In addition to the diversity of trading form. 

On the other side, prices are considered to be highly volatile. Price swings also can last longer. It also requires analytical knowledge and investment strategy. 


Trade Gold with AximTrade

AximTrade is a fast-growing brokerage service provider in the global markets with a highly advanced MT4 execution and Copy Trade platform. One of the core values of AximTrade is to enable forex traders with easy-to-use technology, educational resources, technical analysis, varieties of forex bonus promotions, and a highly competitive trading environment with the best trading conditions.

Explore the best trading conditions with AximTrade, a global leading broker with a top competitive leverage in the market up to infinite leverage. Choose now from various forex account types, based on your trading strategy, experience, and capital designed for investment.


Gold Trading FAQs

How do I start gold trading?

Open forex account, set your risk management plan, and decide which form you’d like to trade; gold ETFs, futures, or CFDs.

What’s the minimum investment capital needed to trade gold?

Minimum account requirements vary according mainly to your broker and the financial tool you are trading. 

Is trading gold suitable for beginners?

Yes, beginners can trade the yellow metal with proper risk management tools. It is a very popular trading tool for all levels of traders.

How can I profit from gold trading?

To have profitable trading, you will need an effective strategy and anticipating market trends.


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