Talking about trading, there are many types of trading that investors choose to do today. We cannot deny that one of the most popular trading methods for making better profits and getting wealthy is gold trading. Due to its reputation as a safe-haven asset and its liquidity, gold trading is a well-liked investment strategy. Understanding the fundamentals that drive the price of gold is crucial when trading or investing in it. Gold has been traded for centuries, and it is used as a benchmark as well as a hard asset to protect against inflation in the future. How do we start trading gold? This article will provide essential information, technical analysis, and tips for new investors who want to trade gold for the first time.
List of Contents
Understanding Gold Trading
Gold trading aims to speculate on the market’s gold price, which could result in a good profit for the investors. It is convenient for traders that gold can be traded using a variety of financial instruments and is available 24 hours a day. Before beginning to trade gold, investors should pay attention to the advice of a professional investor to prevent further risk.
Factors Affecting Gold Price Rate
According to the changes in the gold market, investors or traders need to learn the factors that drive the gold price up or down to minimize the risk before investing.
1. Demand and Supply
Since the supply of gold is limited, the gold price can rise when demand increases more than the supply.
2. Currency Value
Generally, gold is dollar-denominated, therefore, its prices typically decline when the US dollar strengthens and vice versa.
3. Inflation
Although gold prices are rising or falling across the economy, investors often think that gold is a hedge against inflation. The price of gold will rise when the economy is expanding, and fall when it is contrasting.
4. Interest Rate
The gold price tends to drop when the interest rate rises, and it rises when interest rates fall.
5. Geopolitical Uncertainty
Investors may turn gold into a safe-haven investment during political and economic circumstances. For example, the demand for gold may increase during war or political unrest, and the price will be driven up.
Where to Trade Gold
1. Physical Gold
Physical gold can be purchased and sold through neighborhood gold dealers, pawn shops, or online marketplaces. But before engaging in any transactions, it’s critical to exercise caution to avoid fraud.
2. Gold Stocks
You can trade gold without owning any physical metal by investing in gold stocks and purchasing shares of companies. This method seems to be less risky than owning physical gold.
3. Gold ETFs
ETFs or Exchange-traded funds make exposure to gold prices, and they can be traded on the global market without requiring any storage or security.
4. Gold Futures
Gold futures contracts allow you to trade gold prices at future dates, and the investment cost is less than in other markets. It is an attractive investment to make a profit and diversify the risk.
5. Gold Options
Gold options allow you to speculate on gold prices without owning the physical asset. The traders who use gold options will have the right to purchase or sell gold, but the obligation is not allowed.
2 Important Things to Consider When Trading Gold
1. Basics Technique of Gold Trading
These are some techniques that new traders should learn before choosing to invest in gold.
- Learn the long-term trend of the gold market through different time frames such as daily, weekly, hourly, or H4, etc.
- During learning long-term trends, do not forget to analyze the weekly trend to see if the gold market trend may be changed in another way.
- Specify the price in daily and weekly time frames and analyze where the best point is that will make a profit with a reasonable price.
- Learn an intermediary trend that could happen during a daily time frame which may tend to be rising or falling.
- Consider stop loss frequency to avoid the mistake and risks of investment. Do not hesitate to check the stop loss point as much as possible to prevent loss.
2. Technical Indicators Used in Gold Trading
Technical indicators are usually used to predict gold price conditions in the market which is rising or falling. It is also used for trading decisions. There are five indicators that are commonly used for gold trading.
1. Relative Strength Indicator (RSI)
RSI helps determine the strength of price movement in the market. Also, traders often use the RSI to identify overbought or oversold conditions in the market and plan to generate trading signals.
2. The supply and Demand Indicator
It is used to generate buy and sell signals by analyzing supply and demand levels in a particular asset.
3. The Moving Average
It is used to identify if the market trend is rising or falling and generate buy and sell signals based on the moving average.
4. Bollinger Bands
It is widely used to analyze stocks, oil, cryptocurrency, etc., and used to measure the volatility of market buying and selling. It consists of three lines, including the upper band, middle band, and lower band.
5. Fibonacci Retracement
It is used when traders need to learn where to put a stop loss before the price continues in the market direction and identify potential levels of support and resistance.
How to Start Trading Gold
There are some tips provided for the beginner of gold trading below:
1. Choose a reliable broker
Since there are many brokers who provide trading services, you need to find a broker that has received a certificate of reliability and trust from many investors.
2. Choose the right time for trading
Investors need to follow the trend of gold prices in the market. If it tends to be growing, it means now is the right time for the investment.
3. Choose appropriate trading technical
An appropriate technique affects the earnings that you will get through the trading market.
Conclusion
This content provides you with some techniques, and traders can choose which is appropriate for their needs to make the most profit in the future. Before starting to trade gold, ensure to learn and understand gold trading and analyzing techniques, as well as the market. For new traders, it is essential to understand the current economic situation, whether it is good or bad because the gold price is inversely related to the state of the economy.
However, the suggestions of professional traders could be helpful when starting an investment because they can suggest by their experience and the points that should be avoided to prevent risk. Noted that every investment has its own risk, you need to learn to accept the risk that could occur during the investment.
FAQs
There are two important risks that should be avoided as follows:
1) Its volatility could affect price swings in the market and make a significant loss for investors.
2) A change in the currency could affect the gold price rates directly.
The best time for gold trading is around 3 p.m. – 11 p.m. (GMP+3), and please follow upcoming events, such as political or economic, that could affect the gold price changes in the market.
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Read more: Commodities
Source: Investopedia