gold trading

November 5


Posted by: Lorraine Longman,
 November 5, 2020

Minute Read

Gold and Forex Trading: Basic Guide

Gold trading is for the daring. It requires a profound knowledge of a market that works like no other. Here, ups and downs follow unique logic. Gold does not move like other commodities or currencies. However, Forex traders can also master it. Diversified portfolios limit their risks. So, how should gold be approached?

Humans have been buying and selling gold for centuries. Today, when the process is digitized, there are quite a few proven strategies for gold and Forex trading. No bullion changes hands – all transactions are now virtual. This means that trading opportunities are at your fingertips, wherever you are. Sophisticated software and trading apps allow us to make profitable decisions anytime, anywhere.

News-Based Gold and Forex Trading

The value of gold is affected by myriad factors. It is connected to equity markets and raw materials. The price may rise or fall due to political and economic changes, crises, natural disasters, and even terrorist attacks. From geopolitical to domestic, the scope is wide. In addition, pay attention to the general statistics for the metal.

Unlike currencies, gold is tricky to trade based on the news. You cannot expect to make a profit using a single report, or even a range of media data. The logic is relatively complex. Generally, it is possible to predict the effects of only major events or releases.

Traders should not rush to open positions immediately after a major event. Why not? Because the resulting price movement may not be accurately predicted. A dramatic decline in the stock market may cause gold to appreciate. Consequently, traders should open long positions, as conditions for buying are favorable. 

Gold Trading Strategy: Fundamentals

It is common knowledge that gold shows a strong negative correlation with the American currency. This means that when the US dollar rises, gold loses value and the other way around. Prices for these instruments move in opposite directions. Therefore, a bullish signal for gold means a bearish signal for the USD and vice versa. 

Traders should realize that these signals do not appear simultaneously. This delay allows them to capitalize on the dynamics, as they can make decisions in both markets. Long positions for gold are associated with short positions for the USD. Here is how to use this gold trading strategy in practice.

Gold vs. USD

So, how to make money trading gold? First, open the price charts on your trading platform. Compare the dynamics of gold with changes in the price of a currency pair with USD (e.g., USD/JPY). Both charts should show the same time frame (e.g., H1).

The next step is to identify support and resistance levels for both instruments. When a breakout occurs, it is time to make a move. It is also useful to analyze the shapes of the candlesticks. These can hint at where the price will go in the future.

Sometimes, you may identify resistance on the currency chart, but fail to see support on the metal chart. There is no need to worry. When resistance is broken for the currency pair, a sell signal on the gold chart will follow. This is a general rule.

Overall, if the US dollar is robust, this is a bearish signal for gold. On the other hand, if you see a bearish currency candlestick, buy the metal. Open a long position for gold and monetize knowledge. In these circumstances, the metal is likely to appreciate. By making this move, you can reap a hefty profit.

Gold vs. AUD

Another currency worth considering is the Australian dollar. Use your knowledge of the currency for successful trades. In general, the metal shows a positive correlation with the AUD/USD pair. The connection is strong because Australia is among the leading producers of gold in the world. The national Reserve Bank has to maintain sufficient gold reserves in balance. 

The precious metal is responsive to fundamental factors and monetary changes introduced by the institution. For example, the slashing of interest rates in 2016 caused massive amounts of gold to be sold.

Read: Trading Сurrency Pairs on Forex: Basic Guide

Season-Based Strategy

The valuation of gold also depends on the season. The metal demonstrates strong patterns at different times of the year. It gains value during some periods and weakens during others. Therefore, a trader should learn about these regularities. It is not rocket science. 

You need to know when gold is the strongest and the weakest on average. These patterns recur during the same parts of the year. Generally, growth is observed in the first quarter and the final months. Use these insights for successful trading gold on Forex.

A proven strategy involves buying gold when it is the cheapest. The best time is January and February. This is when the price usually starts climbing. Wait for confirmation before opening your long positions. 

Tech figures and oscillators like RSI (Relative Strength Index) or MACD (Moving Average Convergence Divergence) may serve as a reliable basis. In addition, pay attention to candlestick shapes, as these may point to reversal. If you see the winter pattern hold, buy. 

Profit should be collected before February ends. The general principle is the following: if the pattern is confirmed at the beginning of the year, it is expected to hold throughout the season. According to this pattern, the worst month for trading is March. This is why all positions should be finalized before.

Important Tip

Traders should be aware of specific gold trading hours. The spot price you see on your charts after major players conclude their trades. This happens at around 10:30 a.m. and 3 p.m. GMT. Most traders take action during this time bracket. It is advisable to open and close positions for gold within the same period.

Modern Trading Tools

Modern technology provides easy access to different financial markets, including commodities. To trade gold, you need a brokerage account and the right software. Everything can be managed from the comfort of your home. Decades ago, this comfort was unimaginable. 

Choose your broker wisely. It is best to trade gold through a well-established company. Check its license and registration details before funding your account. You need to be sure you will be trading through a reliable intermediary.

Popular trading software includes platforms, apps, and web-based systems. These provide uninterrupted access to the market. Thanks to cross-platform functionality, you can switch devices during the day. Whenever you need it, gold is at your fingertips. If you understand what moves this commodity, it can bring you real money.

Key Takeaways

Gold will never go out of fashion. It has been bought and sold for thousands of years. Today, it is often a click or a tap away. Trading spot gold is different from the currency exchange. However, it also requires knowledge, skills, and perseverance. 

The metal shows a correlation with the value of the USD and the AUD. Traders should keep an eye on both charts, looking out for correlations. Learn as much as possible about these currencies and their relation to the precious metal.

Another group of patterns is connected to seasons. Here, traders should open positions based on the confirmation only. Remember to consider multiple factors affecting the price of gold. This will lower risks and allow you to magnify profits.

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