Gold:Gold is the oldest precious metal known to man and for thousands of years it has been valued as a global currency, a commodity, an investment and simply an object of beauty.
Trading Gold: How It WorksBefore you sign up for a trading account, it’s important to understand the basics. Gold trading at today’s markets provides investors with several options:
• Gold bullion – Gold bullion is physical gold, often in the form of bars or specialised coins. The value attributed to the precious metal depends on the type of bullion and unit weight. But while owning physical gold may be easier than procuring large quantities of oil, there are still transaction fees, storage costs, and insurance to consider.
• Gold certificates – Similar to cash banknotes and originating in the 17th century, gold certificates demonstrate ownership.
• Gold futures – Gold futures and micro futures contracts agree a fixed price for the commodity at a specific date in the future. Because gold futures are traded on exchange platforms, they promise more leverage than dealing in physical gold. Returns are dependent on the fluctuations in price between the time the contract is agreed and the expiry.
• Gold CFDs – Gold contracts for difference (CFDs) are short-term orders to buy or sell a fixed amount of gold. Gold CFDs have a set expiry. Returns made trading on gold CFDs will depend on price changes during the contract.
• Gold ETFs – Gold exchanged-traded funds (ETFs) are usually purchased from a broker or stock exchange. They allow you to buy a pool of securities, commodities for example, without having to purchase all the individual assets. Costs are low but the value of the ETF is tied to the price of gold.
• Gold swaps – Swaps are custom contracts traded over-the-counter (OTC). In contrast, futures and options contracts are found on central exchanges.
Trading Gold in ForexGold is effectively a currency in the forex market. It is nearly always traded against the US dollar with the code XAU/USD.
As a result, your strategy needs to track movements in the US dollar.
An increase in the price of the US dollar could push the value of gold down. So keep abreast of forex news websites for tips on upcoming trends and analysis.
Liquidity also plays an important role when trading gold on the forex market. Average daily trading volumes of gold exceed all currency pairs, excluding EUR/USD, GBP/USD, and USD/JPY.
Note : Gold trading hours on forex websites often run continuously around the clock.
Trading Gold Strategy
There are many different techniques and mechanisms you can employ in your gold trading strategies. All will require daily technical analysis on price and volume charts. You’ll also need to understand what influences the price of gold:
• Supply and demand – Volume per day data shows half of global demand is driven by jewellery production. Another 40% represents investment accounts. Take a look at price charts and you’ll see that when demand is up and supply is down, price rises. In contrast, if supply increases and demand drops, live price rates will fall.
• Market volatility – Real-time trading signals on your charting software will respond to market moves. When stocks aren’t performing, people move to gold. In contrast, when stock market forecasts are strong, gold trading levels fall.
• Geopolitics – A quick look at gold’s price history and you’ll see predictions today are guided by geopolitical forces. Uncertainty in the financial markets will cause businesses to hurry to gold, pushing prices up. So get familiar with a map of the world and brush up on basic economics to ensure you’re well prepared.