Gold is an invaluable product and is among those highly coveted metals with a status symbol. Whereas the metal’s main use is in the aesthetics and jewelry manufacturing industries, it plays a more significant role in the financial markets. In contrast with most precious metals, gold is famous for its storing value in financial markets. As such, gold trading has become a lucrative venture for the majority of those in the capital markets.
Only a handful of people with considerable finances could access the trading systems for this precious metal in the past. However, the spread of internet connectivity virtually in every corner of the world has made it possible for anyone to access these systems. Nowadays, anyone can trade the coveted product instead of purchasing it for other reasons.
The Trading Options
In the capital markets, the trading of currency pairs and gold is similar. The traders can leverage the changes in prices during the day.
Contract of Difference (CFDs)
Trading of this commodity is guided by retail forex brokers through Contract of Difference (CFDs). Traders can speculate the gold price without owning any physical gold, thanks to CFDs. The traders can also get into an extended position, implying a wager that the gold price will increase. On the contrary, CFDs enable traders to enter a short term position, which involves betting on lower prices. CFDs relieve the traders of having to pay for roll futures or gold storage. Nonetheless, they are financial instruments that bear high risks, given the market volatility.
Other than trading gold using CFDs, you could choose a day trading alternative, futures, or ETF. Similar to CFDs, the techniques do not entail holding the physical metal and searching for potential customers. Gold futures and ETFs enable traders to acquire exposure for the product in the same way you could perform currency pair trading in the foreign exchange market. Traders can bet on the estimated gold prices via the acquisition of exchange-traded deals using futures.
Gold futures provide a leveraged means of trading gold, which means that a trader only needs a little capital. The capital is deposited into the trading account of their broker, after which large trading volumes can be made.
Analyzing the Market
Market analysis is a crucial aspect incorporated during the trading process of this invaluable, precious metal. Any retail trader must master this section before trading the coveted metal. In this case, the analysis includes fundamentals that could impact price movements in any direction while keenly observing historical information. A few of the fundamentals linked to having an impact on gold prices revolve around demand and supply forces.
Increased supply in relation to demand often leads to lower prices. On the other hand, a supply decrease connected with an increase in demand sparks off an increase in gold prices. Whenever there are increasing concerns regarding recession or international economic slowdown, the prices of gold go up as traders focus on the coveted metal as a value storage alternative. During geopolitical uncertainties and tensions, gold is a haven for wealth storage.
Another way of understanding how to best trade gold is through technical analysis. It is essentially utilizing trading tools and historical information to confirm the expected direction of the gold prices. Through technical analysis, technical traders can recognize oversold and overbought conditions. Such conditions come in handy as they provide indicators for entering sell or buy positions.
What to Remember
There exists a direct relationship between gold prices and the Japanese Yen. When Yen increases, it is normal for this commodity’s prices to follow in the same direction. In the same vein, a decline in gold prices means a fall in the Japanese Yen currency. The direct relation can be explained by the fact that the two function as safe havens for value storage during unpredictable moments.
The U.S. dollar also correlates with gold prices. Unlike the Japanese Yen, the valuable metal has an indirect relation to the dollar. When the dollar is performing well in the markets, gold prices depreciate. The reverse is also true. As for the purchase size, remember to tread carefully when trading gold, mainly when it comes to your exposure level.While significant trading levels are a reliable way of getting your profits quicker, it can also prove disastrous when you begin accumulating losses. An asset assignment of above 15% committed to valuable metals may lose higher returns provided by other property classes.