Today, trading gold has become as easy as trading Forex. It’s all thanks to online trading platforms and publicly traded gold funds, more commonly known as ETFs (Exchange-Traded Funds).
There are various strategies for determining the price of gold. They range from studying the fundamental factors influencing supply and demand to technical charts analysis. Let’s see the main factors affecting gold price and some useful tips to have in mind when trading gold.
Price of Gold vs US Dollar
While it is possible to trade the Japanese yen or the Australian dollar against various other currencies, the gold price is almost always traded in US dollars. Therefore, investing in gold means that you will have to consider the movements of the US currency. For example, if its value increases, then the price of gold could fall. If you wonder if you should trade gold in 2021, the answer is that you should absolutely since the price of gold is continuously rising, and according to recent estimates it is likely to soar up to $2300.
The Liquidity of the Gold Trading Market
An additional factor to consider when learning to invest in gold is the liquidity of the market. The World Gold Council estimates that the daily gold trade average is higher than that of all currency pairs except EUR / USD, USD / JPY and GBP / USD. Therefore, it is higher than the daily volume of trade on the EUR / JPY pair, for example. As a result, the difference between the buy price and the selling price – is reduced. It makes gold relatively inexpensive to invest.
Supply and Demand Factor
An experienced investor will think about keeping an eye on the demand for gold jewellery. In India and China, gold jewellery is considered a long-term investment. Gold is also important in industry, and central bank purchases and sales can also influence its price.
In terms of supply, experienced investors will prefer to monitor actual data from major production companies. Barrick Gold and Newmont Mining are some of them.
Tips for Trading Gold
When you start trading, refer to highs and lows and trend lines on the technical analysis chart.
The use of Elliott wave analysis, Fibonacci retracement levels, momentum indicators, and other techniques, could help investors anticipate future price movements.
If the market is showing a clear trend, use a momentum strategy relying on momentum indicators. If the gold price dithers, it is advisable to use low volatility or long term strategy.
During an uptrend, the line on the chart connecting the previous highs will act as resistance when it is above the current level. In contrast, a line connecting the previous lows will correspond to support with the opposite effect in a bear market.
When it comes to fundamental analysis, the trader needs to determine whether the market sentiment is likely to be positive or negative. In the first case, the price of gold could fall, and in the latter case, it is likely to rise.
Furthermore, all Forex investment rules also apply to gold trading. Therefore, graphical analysis of the gold price and its trends help determine the best approach to opening or closing a position. Individual investors will have to be careful about their level of overexposure. They should also think about managing the various risks well, setting objectives and setting up stop orders, in the event of a reversal of the market’s situation.
Even for investors who only consider fundamentals, many agree that the ideal strategy should also include both market climate analysis and technical analysis. Therefore, a good tip would be to use the mixed study of fundamentals and technical charts to spot trends.