Gold has always been and continues to be an excellent investment. There are many exciting opportunities for both investors and traders. If you want to trade in gold successfully, you must have all the knowledge of what gold is like as a commodity. Moreover, you need to understand what makes for an excellent gold trading strategy.
Here you will find a guide that will give you all the information you need, along with some of the best gold trading methods and strategies. We will also give you information on what factors affect the price of gold and the best time to buy it.
Why Should You Invest or Trade in Gold?
Gold is a fascinating commodity; it is both attractive to traders and investors. This is because you can find significant profitability and diversify your investment portfolio. Investors have always been keenly interested in Gold as it makes for an excellent long-term investment. Its value in the long run only goes up.
When there is a tremendous economic crisis, traders and investors always opt for gold investments as it is not very susceptible to instability in the market or any downturn. However, investing in gold isn't entirely risk-free. The value may decrease over a long period.
Gold trading is preferable for many reasons, it provides higher profit margins, but you must be wary of all the significant risks. It all depends on the gold trading method you opt for. There may be high volatility depending on what you choose. You will profit greatly if you can read and understand the trends correctly.
However, there are downsides to gold trading, such as high brokerage fees. That may impact your profit margin significantly if you fail to choose the right broker. The market's volatility can bring about heavy losses to investors, even in a short time.
Types of Gold Trading
If you want to trade gold, you can use several ways, but they all come with pros and cons. Before you start investing, you need to have a clear strategy. You need to include all your investment and trading goals in the strategy and how you can reach them using the best method.
Gold Options and Futures
The Gold Options and Futures method is the most straightforward way to trade gold. You can use a regulated exchange to do this. However, you need a brokerage account to do this and a $5000 deposit because of the restrictions on the futures market trade size. The smallest is 33 ounces of gold.
Gold ETFs
If you do not want to trade gold directly, you can trade ETFs. There is a close correlation between the fluctuation of share prices and the prices of gold. Again, you will need to open a brokerage account and use it to trade shares. This will require you to pay a hefty trading fee to the broker you choose, and the minimum deposit requirements can be costly.
Gold Mining Shares
Gold mining shares do not deal with direct investment in gold. The shares of gold mining companies are impacted by the changes in the price of gold. Other factors affect the cost of mining shares and make them even riskier and more unpredictable.
Gold at a FOREX Broker
If you are looking for the easiest and the most cost-effective way to trade gold, you can go for FOREX/CFD. You can choose from several FOREX/CFD brokerages with better support and other services.
There are many advantages of FOREX/ CFD brokerages, such as gold trading. You can trade gold for its actual price of gold per ounce. You can even start trading with an investment of less than $100. The minimum trade requirements are one ounce of gold. The disadvantage is that if you want to trade in the longer run, you will have to pay an additional fee; you're only exempted if you have an Islamic trading account.
Proven Gold Trading Strategies
Fundamental Analysis and Gold Trading
Gold trading fundamental analysis is based on macroeconomic factors and other parameters that influence the price of gold. If you can collect and analyze macroeconomics factors and other parameters, you will be able to correlate to the movement of gold. Here are four general circumstances that influence the increase in gold prices:
- High inflation rate
- Economic instability and crisis
- The plummeting value of the US dollar
- Bad real estate prices
High Inflation Rate and Gold
If the inflation rates are high, the price of gold will be positively impacted. Inflation rates can be extremely high if they cross the 6% rate. Such rates were only experienced in the early 1980s. During these times, gold prices were at a significant high.
Economic Crisis and Gold
There have been three major economic crises in the United States, the 1970s economic decline, the 2008/2009 financial crisis, and the 2020 crisis. All these crises have shown a very positive correlation with gold.
US Dollar Index and Gold
US dollar and gold trading are directly connected. The exchanges express gold prices in US dollars, and the fluctuations are valued against the US dollar by the US Dollar Index.
Negative Real Interest Rates and Gold
If a country has a negative real interest rate, then that means that the currency has a high inflation rate and that increases the currency's interest rate. The currency's value is lost because inflation is faster than the interest rate. This has only happened twice, once in the 1970s and once in the year between 2018 and 2019. In both instances, gold's price rose, but there is no substantial proof.
Seasonality and Gold
You need to keep the seasonality of gold into account when you map out an investment strategy. Specific periods in the year lead to price increases in gold. A lot of long-term data supports that August, September, and November are great for gold as the prices are high compared to the rest of the months.
Technical Analysis and Gold Trading
The technical analysis of current and historical gold prices shows how gold prices have moved around over the years. This is to find out all the trends and patterns that help you determine what your trading decisions should be. To do that, you will need to analyze trend trading and volatility trading.
Trend Trading and Gold
Trading on breakouts in the long term is one of the easiest ways of trend trading on gold. This breakout strategy works by comparing the closing price of gold monthly and then comparing them with six months' prices.
The bullish trend is where the closing price is higher than the long-term trade. On the other hand, if the closing price is lower, then the trend is called bearish. This is an excellent time to invest in a short-term trade.
Volatility Trading and Gold
This trade compares gold prices and the ATR with the average range. This measures any changes in the prices of gold on a specific day. Studying these trends will show if the price exceeds the average daily changes.
Best Advice for Gold Day Trades
If you want to get the highest benefits from your trade, then you need to make sure that you pay attention to factors such as:
An increase in gold prices may increase the 6-month high, and if that happens, you need to use the bullish approach when trading.
On the other hand, if the prices are higher than what they were six months ago and still below than values during the six months, then it is best to take a conservative bullish approach.
Prices lower than the 6-month high will require you to use an aggressive bearish approach.
If the prices are lower than six months ago and higher than the values during that time, then a conservative bearish approach is the best way forward.
If there has been any slight change in the last six months, you can use trade reversals at either resistance areas or the apparent support.
What Is A Gold IRA is an excellent solution for all those who want to invest in gold. We have the best experts on our team, and they ensure to publish materials that can help you get all the information you need about investing and trading gold.
We aim to help you make the best decisions possible. Allow us to help you diversify your portfolio and increase your profits. You can contact us today to learn more.
