Why trade gold?
Gold is one of the most common and rewarding metals you can choose to trade. With the right trading strategy and spread-betting platform, trading gold more or less resembles foreign trading. Gold trading strategies are diverse and mostly encompass fundamental, sentimental and technical analysis.
Gold is usually priced in US dollars, which helps in market analysis. We will, therefore, look at the reasons why you should trade gold and some of the strategies that you can exhaust for maximum returns.
Why trade gold?
Times have changed, and so has gold trade. Before, traders had to buy the metal and later resell it, which proved challenging. Futures and options were then introduced, where traders traded without ending up with a full set of different valuables.
As time progressed, Gold exchange-traded funds came, which made trading more comfortable. Gold traders traded gold in the same way stocks are sold in the forex market. What we have now is by far the best approach to gold trade. Nowadays, the gold trade and forex trade are more or so similar.
Spread-betting platforms have made gold trading one of the most straightforward ventures. Just like currency trade, all you have to do is to either buy or sell depending on the price predictions. One of the advantages of gold trade is that unlike the currency, you are dealing with a physical commodity.
Another reason why you should trade gold is that it is mainly used as a store of value. Unlike currency, it is not subject to a lot of government regulations.
Trading strategies
There are several strategies you can employ in gold trade. Some of the most common include studying the market forces, positioning of gold traders, technical analysis which is quite demanding and using a gold chart in the analysis.
The best strategy, however, is incorporating all the strategies, which means a combination of technical analysis, fundamental analysis, sentiment analysis and the gold chart. The sentimental analysis allows traders to spot trends, whereas the gold table determines when to enter and exit a trade.
Advantages of trading gold over trading forex
Gold trading has its fair share of advantages that forex trade cannot meet. One, gold is not affected by the government’s financial controls or Central bank regulations since it is mostly used as a store of value. This means that gold is rarely affected by inflation, which is one of the main reasons why many currencies have been rendered worthless.
Gold can also be used as a safe along with other vital assets, which include treasury bonds and currencies such as the Japanese Yen and the Swiss Franc. Instead of worrying about risky trends, a trader can rest easy by acquiring gold and other assets. You can also sell these assets when the risk appetite grows instead of going for stocks and currencies which have unfavourable interest rates.
Gold is actively traded 24 hours a day, which gives it an edge over foreign exchange. In forex trading, different markets close after New York closes, reducing the volume of trade and consequently price movements that the traders can take advantage of. Gold exchanges happen all the time, which gives this precious metal high liquidity.
Trading gold is cheaper as compared to currency trade because it heavily leans on market liquidity. Gold records the highest trading volume compared to all the currency pairs. There is also a small difference between buying and selling prices.
What you need to keep in mind
Gold, unlike the assets associated with it, is mostly traded against the US dollar, which implies that the value of the dollar will indirectly influence the price of gold. When there is an increase in the value of the US Dollar, the cost of gold falls.
Gold trading strategies
Technical analysis
Technical analysis is one of the most common gold trading techniques. It entails studying the gold chart and identifying the changes in market conditions. The period between 2005-2015 recorded a sizeable trend.
However, from 2015, gold has recorded a predictable range, mostly $400. For trending markets, the best approach is to use a momentum strategy, whereas range strategy suits a range-bound market.
How do I use the technical analysis technique?
The best way for a beginner is to take advantage of the former highs and lows in the gold chart as well as the trendlines and the chart patterns. One should note a rise above the current level during an increase in price and a fall above the current during a price decrease.
To establish resistance, look at the line connecting the previous highs for an uptrend. For a downtrend, look out for the lines connecting the former lows. Since technical analysis also requires taking note of the chart patterns, do not miss the double bottoms and the tops.
As you progress in the technical analysis method, feel free to incorporate means such as momentum indicators and more challenging prediction techniques.
Tips that you can take advantage of.
There are tips that you can exhaust for maximum returns, whether you are a beginner or an advanced gold trader. For fundamental analysis technique, a beginner should consider the market sentiment and the direction it is likely to move. Positive movement signifies a fall in prices, and a negative change rise in price.
An advanced trader should also consider the dollar on top of the market sentiment analysis. Since the dollar price of gold has stayed stable over time, such a trader can buy gold when political factors tend to threaten and then sell later. Such traders should also take note of the output figures from the primary gold companies.
You should also apply the forex trading tips. Factors such as risk management, targets and leveraging should be taken into account. Before buying gold, make sure that you consider the industrial demand for gold and gold jewellery. It would be best if you looked out for the Central Bank too.
Conclusion
Gold trading has enormous returns. You should, however, make some considerations before buying and selling gold. Me sure, therefore that you use both the fundamental, sentimental and technical analysis techniques.