Home > Commodities News > Gold Trading Forex

Gold Trading Forex

April 12, 2017
By Daisy Joseph

Gold Trading forex

Because the gold market offers such high liquidity and so many excellent opportunities for investors to profit, gold trading is among the most popular investment activities.

How to Trade Gold Online

While many people (often called “gold bugs” by others) choose to buy and own gold in physical form, there’s an easier, instantly accessible way to take advantage of world gold markets. Trading gold online is a good way to make the most of your money, even if you have a limited amount to begin with. With Forex, gold trading is simple – especially if you already have some understanding of the market and how it works. Gold units are always measured in Troy ounces against a certain currency (usually the U.S. dollar) in a way that’s similar to Forex currency pairs.

Gold Trading Basics

Offering incredible stability yet representing significant opportunities for growth, gold trading is popular even in volatile markets and during times of economic instability or downturn.

With Forex, there is never a need to become a “gold bug” and take on the physical risks involved with handling, storing, protecting, and trading the actual gold. Among the many benefits is the advantage of trading 24 hours a day, 5 days a week, in whatever markets are open at the time you plan to make your trades.

As with other types of trading, Forex gold trading comes with risks that need to be managed; perhaps chief among them is the risk that comes with making trades based on emotion. The ability to use insight and knowledge rather than relying on emotion is a hallmark of those who make successful trades.

What is Influencing the Trade in Gold

Gold is one of the world’s oldest currencies, and as such, it is fairly predictable. Gold reacts only to certain price catalysts that control price action. These include:

  • Inflation and deflation
  • Supply and demand
  • Market volatility

Gold trading is interwoven with the trade of other currencies, and with the general status of financial markets worldwide. Supply can be affected by factors such as the discovery of new seams, decline in yields, and political instability. Demand typically comes from the need for gold to use in technological products and jewelry. When markets are volatile, gold is often relied on as a safe haven investment that diversifies investments and provides a hedge against inflation.

Gold Trading Strategies

As with all other trading instruments, there is no single “best” Forex gold trading strategy. When developing a strategy, traders are encouraged to analyze the gold trading chart, which features a long-term history that dates back a little more than 100 years. This chart illustrates the way trends work, and shows that they can last for months, years, or even decades.

With Forex, traders have the opportunity to focus on current “spot” prices of gold, which are based on the prices of the most active futures contracts at the New York Commodities Exchange (COMEX). Since these futures contracts are actively traded at a central location, they provide the best, most accurate prices for gold.

Short-term traders tend to profit by using a moving average crossover strategy in which they look to buy gold when a shorter-term moving average crosses above a longer-term moving average and sell whenever a shorter-term moving average crosses below a longer-term average. This strategy often allows traders to catch the “meat” of a trend, even though there is no guarantee of similar performance in the future.

Long-term investors and traders can also focus on the fundamentals that drive gold’s price, particularly real interest rate levels. Buying tends to be profitable when real yields are below 1%, as this level has historically been supportive of gold pricing. When real yields rise above 2%, sell trades have a tendency to be more profitable.

Gold Trading Tips

There are a few tried and true methods for trading the gold market profitably. First and foremost, traders are encouraged to start small and familiarize themselves with a system rather than jumping in with both feet. Despite stories about markets moving in new investors’ favor, creating instant wealth, these tales are few and far between. Knowledge and insight are two reliable tools every trader can rely on.

Second, traders should recognise that gold has a massive daily range and keep that in mind as they work to keep their emotions in check. The biggest moves tend to happen during the hours when both London and New York exchanges are open.

Third, every trader must learn to practice discipline and structure. While gold trading definitely comes with benefits, it has been the downfall of some. Most successful forex gold traders spend a little time practicing with demo accounts before ever going live. Demo accounts use real time data, but any mistakes are made without risking real funds.

Fourth, remember that with Forex, gold can be used as protection against the U.S. dollar. As a general rule, gold trading prices decrease whenever the U.S. dollar increases in value, and increase when the U.S. dollar decreases in value. Using this knowledge, traders can use gold trading as a way of effectively balancing their profits and losses.

In the Forex market, you can buy and sell gold in a matter of just a few hours, and use it to profit from the many small fluctuations in gold prices. Thanks to internet technology, this valuable commodity and the trading services that keep it flowing are available to all – not just professional traders with deep pockets. By making wise, well-informed choices, you can use your knowledge to increase your wealth.