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Lesson 5: Gold Trading

Lesson 5: Gold Trading

Gold is one of the most widely traded raw materials around the world. Discover how to speculate on gold prices, as well as gold-linked shares and ETFs through CFDs.

Trading gold is sometimes referred to as a ‘safe haven’ by traders because, unlike some shares in the stock market and fiat currencies in forex, its price is not always affected by governmental decisions or inflated by interest rates. On the contrary, gold can act as a form of insurance, as investors might reallocate assets into the gold market at unstable times. This could increase the value of gold since its demand might rise as traders attempt to use it as a stock and currency hedge.

If you are ready to trade gold here is a quick guide to help you get started:

  • Select a gold market to trade: Choose between spot prices or a selection of gold stocks and ETFs.
  • Make a trading plan: Decide whether you would like to trade on gold short-term, or long-term - and how you're going to manage your risk.
  • Open a live account: Fill in our online form to create a CFD trading account.

For a more comprehensive overview of how to trade Gold, follow our in-depth guide below.

Gold trading online

Gold trading is the practice of speculating on the price of gold markets in order to make a profit. Usually, physical gold bars or coins are not handled during the transaction; instead, they are settled in cash.

There are a number of reasons why you might decide to trade gold, including pure speculation, wanting to buy gold and take ownership of the bars and coins, or just wanting a gold investment to hedge against global instability.

As a gold trader, there are several options for how to trade your asset. An easy option would be to buy and sell gold at its spot and futures prices.

The spot price of gold is how much it would cost to buy upfront – or on the spot. It is usually the price of one troy ounce of gold. Trading spot gold is a popular means of getting exposure to bullion without having to take ownership of the precious metal.

Futures contracts enable you to exchange gold for a fixed price on a set date in the future. You’d have the obligation to uphold your end of the deal, whether that’s through a physical or cash settlement. Futures contracts are standardized for quantity and quality – only their price is driven by market forces.

Alternatively, it is possible to trade ETFs (Exchange Traded Funds) that track the price of the precious metal or stocks of companies involved in the gold industry.

When trading gold, you don’t necessarily need to hold the traditional mantra of ‘buy low, sell high’, as you can go long and short on gold prices – taking advantage of markets that fall in price, as well as those that rise. Whichever position you take, the aim of gold trading is to predict which direction the market will move in. The further the market moves in the direction you’ve predicted, the more you’d profit and the more it moves against you, the higher your losses.

CFD trading is one of the popular options to trade gold and gold assets, and CAPEX.com offers a wide range of markets, including commodity trading. View our instruments page for Gold – Cash to view our competitive spreads, buy and sell prices and margin rates, and the common trading hours that we offer for gold trading.

We also have a brand-new gold share basket to trade through CFDs, which tracks top Companies that engages in the acquisition, exploration, and development of gold in different countries around the world. This basket named Gold Rush ThematiX in the trading platform gives exposure to the largest gold stocks including Newmont, Barrick, and Franco-Nevada.

>> Ready to start trading gold? Open an account today.

Gold CFDs

Gold CFDs (contracts for difference) are leveraged products that only require a trader to deposit a small percentage of the overall trade value, which is referred to as margin requirement. Unlike buying outright at the gold spot price, you do not own the underlying asset but agree to exchange the difference in value from the time difference between opening and closing the position. Please note that where there is the opportunity for profit from trading gold, there is an equal opportunity for losses. Read more about the meaning of CFDs here.

Trade gold through gold-linked stocks and funds

Trading gold stocks and ETFs is a popular way to get indirect exposure to the price of the precious metal.

It is also possible to trade CFDs on baskets of shares of publicly traded gold mining, refining and production companies. Exchange-Traded-Funds give you much wider exposure than you would get from a single position, which makes them a fashionable way of diversifying a portfolio. ETFs are passive investments, which replicate market returns rather than seeking to outperform them.

The most popular ETF that tracks the price of gold is SPDR Gold Shares ETF (#GLD), while the most popular gold mining fund is Direxion Daily Junior Gold Miners Index (#JNUG).

Trading stocks can also be an effective way to get indirect exposure to gold. You can gain exposure to every element of the gold industry, from mining and production to funding and sales. It is important to note that gold stocks do not always move in the same way as bullion, as there are a lot of other factors that drive the prices of shares.

Gold trading example

GOLD is trading at 1857.15 / 1857.55

Gold Trading example
Source: CAPEX WebTrader

You decide to buy 2 CFDs because you think the price of GOLD in USD will go up. GOLD has a margin rate of 5% (or 1:20 leverage), which means that you only must deposit 5% of the total position value as position margin.

Therefore, in this example, your position margin will be $185.755 (5% x 2 x 1857.55).

Remember that if the price moves against you, it is possible to lose more than your collateral of $185.755.

Outcome A: winning trade

Your prediction was correct, and the price rises over the next hours to 1925.20 / 1925.60. You decide to close your long trade by selling at 1925.20 (the current sell price).

The price has moved to $67.65 (1925.201857.55) in your favor.

Your profit is 2 x 67.65 = $135.3.

Outcome B: losing trade

Unfortunately, your prediction was wrong, and the price of Gold drops over the next hour to 1817.15 / 1817.55. You feel the price is likely to continue dropping, so to limit the losses you decide to sell at 1817.15 (the current sell price) to close the trade.

The price has moved $40 (1857.551817.15) against you.

Your loss is 2 x 40 = –$80.

What moves the price of Gold

Unlike almost any other asset, gold is typically neither a safety nor a risk asset, though the popular financial media have often called it both over the years (depending on how gold has been performing in recent months). Instead, it’s a currency hedge for which demand rises when there are concerns about inflation diluting the purchasing power of fiat currencies (particularly those most widely held, like the USD and EUR). In other words:

  1. In times of optimism (aka risk appetite), gold can either appreciate if markets believe growth will lead to inflation, or it can fall if the desire for higher yields overrides inflation concerns and investors move into more classic risk assets which they believe will provide better returns.
  2. In times of pessimism (aka risk aversion) gold can either rise if markets believe that stalling growth will lead to rising deficits and/or money printing that could cause inflation, or it can also fall on fears of deflation or of a market crash that feeds demand for cash. In times of panic, traders seek cash either to cover margin calls or other obligations or to be ready to go bargain hunting.

    If pessimism turns to panic, then gold could either:
    – rise if markets are more concerned about the USD or EUR losing their purchasing power than about near-term liquidity needs, as was the case at times from 2009 through 2011.
    – fall if markets are more concerned about liquidity than the loss of purchasing power, as was the case in late 2011.

When markets are not concerned about fading purchasing power, the major currencies tend to gain against gold. That can happen due to:

  • Low inflation expectations, as we saw starting in late 2011. Concerns about the global economy kept inflation fears low, and so gold began a multi-month downtrend.
  • Panic periods are when markets fear a financial crisis, and liquidity becomes the top priority. We saw gold sell-off during times of peak anxiety about the US or EU. During these periods, investors tend to sell gold to raise cash.

Stay tuned with the latest gold analysis and price prediction provided by our team, gold experts, and investment banks.

Gold Trading Strategies

As with any trading instrument, there is no single “best” way to trade gold. Many traders from other markets have found that the technical trading strategies they employ on other instruments can easily be adapted to the gold market, especially given gold’s tendency to form durable trends.

A Short-Term Strategy

For short-term traders, a classic way to try to trade Gold is to use 2 moving averages and a stochastic indicator:

  • 50-Period exponential moving average
  • 100-Period exponential moving average
  • Stochastic indicator with a setting of (5,3,3)

The gold chart below shows how this strategy could be applied in the gold market.

Gold trading strategy
Source: CAPEX WebTrader

In this strategy, one would look to trade gold long if:

  1. The 50-period EMA crossed above the 100-period EMA – The first arrow from the left shows a cross of the faster 50-period EMA above the slower 100-period EMA, signaling that the Gold is entering into an uptrend in the 1-minute chart. If the faster EMA remains above the slower EMA, we’ll only look for buy opportunities in this chart, to only trade in the direction of the trend.
  2. Price returns to EMA and Stochastics move below 80 – The next two red arrows show the pullback to the moving averages. After the 50-period EMA moved above the 100-period EMA, Stochastics became overbought, and the price started to make a pullback to the MAs (Moving Averages).
  3. Buy signal – The pullback lowered the reading of the Stochastics indicator to below 20, signaling an oversold market environment. Once the Stochastics indicator moves above 20 again, our system triggers a buy signal.

A Long-Term Strategy

Longer-term position traders and investors can focus more on the fundamentals that drive gold’s price, such as the level of real interest rates. The chart below shows the relationship between gold prices and the yield on TIPS, a proxy for real interest rates in the United States.

The inverse correlation is obvious, but it looks like gold’s rally accelerated as real yields dropped below 1% in early 2019. Not surprisingly, a longer-term look at the relationship would reveal that gold prices fell in the late 1990s, which were characterized by real yields above the 1% threshold.

Gold Price vs. TIPS Yield

Gold trading strategies
Source: BullionVault via LBMA benchmark, US Treasury

Therefore, longer-term traders may want to consider buy opportunities if real yields are below 1%, a level that has historically been supportive of gold prices. Conversely, if real yields rise above 2%, investors may want to focus more on sell trades.

Reading the Gold charts

Gold trading chart
Source: CAPEX WebTrader

Take time to learn the gold chart inside and out, starting with a long-term history that goes back at least 100 years. In addition to carving out trends that persisted for decades, the metal has also trickled lower for incredibly long periods, denying profits to gold bugs. From a strategic standpoint, this analysis identifies price levels that need to be watched if and when the yellow metal returns to test them.

Gold’s recent history shows little movement until the 1970s, when following the removal of the gold standard for the dollar, it took off in a long uptrend, underpinned by rising inflation due to skyrocketing crude oil prices. After topping out at $2,076 an ounce in February 1980, it turned lower near $700 in the mid-1980s, in reaction to restrictive Federal Reserve monetary policy.

The subsequent downtrend lasted into the late 1990s when gold entered the historic uptrend that culminated in the February 2012 top of $1,916 an ounce. A steady decline since that time has relinquished around 700 points in four years; although in the first quarter of 2016 it surged 17% for its biggest quarterly gain in three decades.

Gold’s peak of $2,072.50 an ounce was set in August 2020. Gold approached the record high in February 2022 as investors made a beeline for the haven metal on mounting fears about the Ukraine crisis and rising inflation.

During 2020 and 2022 Gold traded side-ways. This can be either a distribution or consolidation pattern.

CAPEX Academy offers online trading courses to help you understand how to read the chart, how to use technical indicators to identify the trends, and how to recognize chart patterns that provide reliable entry and exit signals.

Gold trading platform

As mentioned, we offer a large number of shares and ETFs, as well as the physical gold commodity, to trade CFDs on through our web-based trading platform, CAPEX WebTrader. Our price charts are customizable to your trading preferences, so you can see your data displayed as clearly as possible when entering and exiting positions.

Register for a live account now to start trading on gold, or you can practice first with $50,000 worth of virtual funds beforehand in order to familiarise yourself with our award-winning platform.

FAQs

How do you trade in gold with CAPEX.com?

You can trade in gold by buying and selling spot gold, or gold stocks and ETFs. To open a position, you’ll need a CFD account.

Is gold worth trading?

Whether it's behaving like a bull or a bear, the gold market offers high liquidity and opportunities to trade in all environments due to its unique position within the world's economic and political systems.

What moves gold markets?

The price of gold is moved by the forces of supply and demand. Factors that can play a role include mining production, inflation and interest rates, political insecurity and safe-haven flows, and the value of the US dollar.

When can I trade gold?

Our gold spot market is available Sun-Fri: 22:01-20:55. Gold stocks and ETFs are available based on the local stock market programs. Please check trading conditions here.

Is gold trading difficult?

Some say that gold is one of the most difficult markets to trade and there is some truth to that – gold does not move like other markets and if investors want to be successful, they need the right preparation, risk and money management rules, but mostly discipline and a proper mindset.

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Prin urmare, Key Way Investments Ltd nu va accepta nicio responsabilitate pentru eventualele pierderi ale traderilor datorate utilizării conținutului sau a conținutului informațiilor prezentate în acest document. Performanțele trecute și previziunile nu sunt indicatori fiabili ai rezultatelor viitoare.
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