Capitalizing in gold is among the most common forms of commodities trading in the UK. Traders have been practising this for over a thousand years. This metal is available in many ways that you can use to trade gold for gold coins, gold bullion, and gold stocks on the stock exchange.
Market players often fail to make the most of the fluctuations in the gold price. The reason being, they have not learned the unique properties of global gold markets and the concealed pitfalls that can steal profits. Furthermore, not all investment instruments are created evenly. Some tools are more likely to achieve consistent outcomes than others.
Trading gold – which is commonly known as safe haven – is not difficult to learn; however, the activity requires skills that apply only to this product. Beginners should be able to move gently. However, experienced investors may benefit from including these four strategic steps in their daily exchange routines.
1. What Moves the Gold Price?
Like one of the ancient currencies in the world, gold is deeply embedded in the essence of the financial sector. Almost everyone has an outlook on the yellow metal; however, gold only reacts to a few price catalysts. These forces split into two parts in the polarity of which influences mood, volume, and intensity of the trend:
- Inflation and deflation
- Offer and demand
- Greed and fear
Market participants are at high risk if they trade gold in response to any of these polarities. When it’s a different polarity controlling gold price action, suppose that trade affects the global financial markets and that gold recovers strongly.
Many brokers assume that fear moves the gold price. They enter the market because they believe that the emotional crowds will blindly make the price higher. Though, inflation could have triggered the drop in stocks and attracted a more technical mass to sell aggressively against the recovery in the gold price.
Combinations of the above forces are always at stake in the London bullion market and pose long-term problems that follow bullish and bearish trends. For instance, the Federal Reserve (FOMC) incentive that started in 2008 initially had little impact on gold.
Market participants focused on the high levels of fear that resulted from the economic collapse in 2008. This easing led to deflation, preparing the gold market for a significant turnaround.
This change did not take place immediately because a reflation offer occurred. Financial and commodity assets moved in the direction of the traditional media. Gold finally peaked in 2011 after reflation was complete and central banks tightened their quantitative enabling policies. At the same time, the VIX sank to a lower level. This indicated that fear was not a major mover of the market any longer.
2. Understand the Crowds
Gold draws large crowds with different and often conflicting stakes. Gold bugs are at the top, gathering physical gold and distributing a large percentage of family resources to gold reserves, futures, and options.
These are long-standing actors, seldom discouraged by declining trends, who ultimately shake up less ideological actors. Additionally, retailers cover almost the whole gold bugs population, with few resources devoted exclusively to the precious metals.
Gold bugs offer huge liquidity with a minimal value between gold futures and stocks as they continually earn interest at a reduced gold price. They also have the opposite purpose of giving short-sellers an efficient start. Particularly in emotional markets where one of the three largest forces diverges in support of intense purchasing pressure.
Furthermore, gold attracts tremendous hedging activity from institutional investors who, in combination with bonds and currencies, buy and sell in bilateral strategies called “risk-off” and “risk-on.”
Funds generate bags of instruments that combine growth (risky) and security (without risk). Trade these combinations via lightning-fast algorithms. They are common in highly loaded markets where public participation is less than average.
3. Study the Long-Term Gold Charts
Take the time to learn the gold price chart thoroughly, starting with a long history that dates back at a minimum of 100 years. Besides the decades of forging trends, the metal dipped insanely long, and gold bugs didn’t make a profit.
From a strategic perspective, this analysis categorizes the gold price levels that require observation when the gold returns to try them.
The recent history of gold had shown little action until the ’70s when there existed a sustained upward trend after the abolition of the gold stock for the dollar, supported by rising inflation caused by rapid increases in crude oil costs.
After reaching $2,076 per ounce in Feb 1980, it fell to around $700 after some months in response to the tightening of the Federal Reserve’s monetary policy.
The succeeding downtrend continued until the late ’90s, when gold began the absolute uptrend and peaked at $1,916 per ounce in Feb 2012. Since then, there has been a steady decline of around 700 points in four years.
Although it increased by 17% in the first quarter of 2016 to achieve the highest quarterly profit in three decades, currently it is trading at $1,618 an ounce in March 2020. You can keep track of real-time forex exchange rates daily.
4. Which is Your Venue?
Liquidity track the gold price trends increase when the rates move actively up or down, and decreases in relatively soft periods. This fluctuation affects futures markets more than equity markets due to the lower membership exchange rate.
New commodities offered by the Chicago CME Group in current years have not significantly amended this equation.
CME provides three key gold futures, a 50 oz. Mini contract, the 100 oz. Contract and ten troy ounces. The micro contract increased in Oct 2010. The volume of the largest contract exceeded 67.6 million in 2017, and minor contracts were not traded frequently.
SPDR GLD (Gold Trust Shares) has the highest ratio across all market environments with exceptionally narrow spreads that could drop to a penny.
The average volume in March 2020 was 14.54 million stocks per day and was easily accessible. CBOE choices on GLD provide another liquid substitute with active involvement that keeps spreads low.
The VanEck Vectors Gold Miners (GDX) ETF performs a higher percentage of daily exercise than GLD but has a higher risk. This is because the connection with the gold can vary widely from day to week month.
Large mining organizations protect themselves aggressively from gold price fluctuations. This results in a reduction in the impact of futures and spot prices.
In case you are using the British pounds, use a EURUSD currency converter to get the gold spot price.
Invest in gold lucratively in four steps and trade 24 hours a day. Begin by learning how three forces affect most commodities trading decisions. Then, acquaint yourself with the different groups that focus on hedging, gold trading, and proprietorship.
Third, take the time to analyze the short and long term gold price charts, keeping in mind the key price levels that might come into the game. Finally, pick your risk venue that focuses on easy trading and high liquidity.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.