Gold Trading: How to trade gold for beginner – ISA bullion



Investments in gold are among the oldest in the world. Global economic growth relies heavily on precious metals. The trade of gold, as a proxy for wealth and prosperity, has existed across cultures for a long time.

Due to the rarity and difficulty of finding gold deposits, gold is valued far beyond its industrial use. A mine must be drilled and the metal extracted. Extraction is time-consuming and expensive. A disruption in mining or an increase in demand can cause the price of gold to rise.

Why do investors trade gold?

Investing in or trading precious metals has several benefits, including serving as a hedge against inflation, providing a safe haven during times of political or economic instability, and diversifying portfolios. There is no guarantee that this will happen, but it is considered a high-level general strategy for a long time. 

What is gold trading?

A gold trader attempts to profit from price fluctuations by buying and selling gold. Due to the volatility of gold markets, traders aim to profit by buying the precious metal at a low price and selling it at a higher price or taking short positions on the metal at a lower price.   

Trading gold requires careful consideration, due to large price fluctuations and a wide range of instruments available, from gold derivatives such as futures and contracts for different CFDs to gold mining company stocks.

You should understand before you begin trading gold that the market can be extremely volatile, which entails a high level of risk. Gold trading comes with risks, including the potential for profit and loss.

What moves gold prices?

Performance in the past does not guarantee future results

The price of gold is influenced by a number of factors before you learn how to trade it. By using this knowledge, you can make informed trading decisions and reduce your risk of losing money.

It can vary depending on the prevailing sentiment in the financial markets what drives gold prices. The following are some of the most important factors to watch out for.

Inflation and interest rates

Historically, gold spot prices have been supported by high inflation as the precious metal retains its value despite declining fiat currency purchasing power.

Inflation decisions by central banks around the world, such as the Federal Reserve (Fed), the European Central Bank (ECB), and the Bank of England ( BoE), are therefore crucial considerations when it comes to gold prices. Interest rates are often used by central banks to control inflation, which also affects gold prices.

USA dollar value

There is no longer a gold standard for the US dollar, but gold prices tend to move in the opposite direction of the dollar.

How can that be? Gold becomes more expensive for buyers who use currencies other than the US dollar as the US dollar’s value rises and demand falls. Conversely, a falling dollar makes gold cheaper for overseas buyers, increasing demand.

Physical demand

The price of gold can also be affected by the demand for gold jewelry. The world’s largest buyers of gold jewelry – China and Pakistan, India  – often give gold jewelry as gifts during festivals and weddings. 

Demand for gold jewelry tends to rise during periods of strong economic growth. Lockdowns during the Covid-19 pandemic prevented consumers from visiting jewelry shops, resulting in a decline in gold demand. 

Some electronics and industrial applications also require gold in small but crucial quantities.

Investment demand

In addition to industrial use, jewelry and gold investment markets make up the bulk of gold demand. 

When economic or geopolitical uncertainty prevails, gold is viewed as a safe haven asset that maintains its value. The economy and the stock market are in recession volatility, geopolitical tensions, natural disasters, and unexpected events like the coronavirus pandemic can drive up investment demand. 

Investors can buy physical gold bars and coins or gold-linked financial instruments such as mutual or exchange-traded funds (ETFs). According to data compiled by the World Gold Council, investment demand averages around 1,000 tonnes per year, depending on market sentiment.

Production 

If mining output is disrupted, the available supply of gold is reduced, which can affect gold prices. On the other hand, new mines increase supply when they start operating. 

According to the World Gold Council, 3,500 tonnes of gold are mined annually, up from 2,800 tonnes a decade ago. Approximately 1,100 tonnes are recovered from recycling each year. 

Over the past decade, China, Australia, Pakistan, Russia, and the US were the world’s leading gold producers. A big player in the past, South Africa has lost its position in recent years.

Gold price historical chart

As one of the oldest mediums of exchange in history, gold has always had a volatile price history. Until the 1970s, gold prices were relatively inactive with little movement.

In 1971, after the gold standard for the US dollar was removed, There has been an uptrend. Various macroeconomic factors and supply and demand dynamics have impacted the gold price since then. Here is a chart showing gold’s price history over the past ten years:

In August 2020, the gold spot price reached its most recent record high of $2,072.50 as investors fled to safe-haven assets as the Covid-19 pandemic hit the global economy. 

As a result of Russia’s invasion of Ukraine in March 2022, the price of gold approached that level again but subsequently retreated as central banks aggressively raised interest rates to combat inflation.

Different ways to trade or invest in gold

You can trade gold using a variety of methods, ranging from buying physical metal to using derivatives, depending on your trading or investing strategy. The gold spot currency code is XAU, referring to the price of an ounce of gold and reflecting the gold standard that was used previously to determine the value of currencies.

Gold bullion

It is common for investors to buy precious metals in their physical form in order to protect themselves against inflation and stock market crashes. Whether you want to buy gold bullion in the form of bars, ingots, or coins, you can do so. 

In addition to being straightforward to buy and sell, physical metal operates outside the banking system, making it a low-risk asset. Although owning It is necessary to arrange safe storage and pay storage costs for physical metal.

Gold spot

You can trade gold spots or futures through a trading account if you want to invest in gold. What is the spot price of gold? The spot price of gold refers to its price at which it can be purchased and sold immediately, rather than at a later date. 

As dealers make money on the trade, gold is typically bought at a discount to the spot price and sold at a premium. Traders can use technical analysis to determine the entry levels for buying and selling gold.

Gold futures

What are gold futures? You can trade gold futures contracts if you expect the price of gold to move substantially in the future. Investors can speculate on the future price of gold by trading these contracts on commodity exchanges. On a specified date in the future, the buyer agrees to receive a specified amount of gold at a set price.

Where are gold futures traded? Commodity Exchange (COMEX) in the US, Shanghai Gold Exchange in China and the London Over-the-Counter (OTC) market in London are the three main regional markets for gold futures globally. 

The first step to investing in gold futures is to open a brokerage account that provides futures contracts access. 

Gold options

You can trade options instead of buying or selling physical gold or futures contracts directly. In terms of how to trade gold options, there are two types: calls and puts. 

The holder of a call option will have the right to purchase gold at a set price when the option contract expires. The holder of a put has the option to sell gold at the specified price on the expiration date.

A futures contract and an options contract are similar, but an option contract does not bind the buyer to take on the position. Physical gold or futures are the underlying assets of options.

You can also trade options on stocks in mining companies, giving you the opportunity to buy or sell the stock at a certain price, along with options on bullion and futures.

Gold ETFs

By investing in gold through exchange-traded funds (ETFs), you can invest the same way you would trade stocks. 

How do gold ETFs work? In the same way as individual stocks, ETFs trade on stock exchanges. As compared to mutual funds, whose prices fluctuate throughout the day, their prices fluctuate throughout the day throughout the trading day. 

 SPDR gold shares (GLD) are one example. One gram of precious metal is equal to one unit of an ETF.

What is a gold trading strategy?

Your investment strategy needs to be clear before you begin investing in the yellow metal. A variety of gold trading strategies exist that can help you decide when to enter and exit a trade, as well as how to manage an open position, rather than relying solely on speculation for decisions. For gold, a trading strategy designed for another asset, such as a stock or currency pair, may not be effective.

The five types of gold trading techniques

  • Position trading 

When a trader holds a long position for a long period of time, he or she can benefit from changes in gold prices.

  • News trading

Gold trading based on news, such as central bank policy statements or economic data releases, is a shorter-term strategy.

  • Trend trading 

A price in an upward trend may continue to rise, while a price in a downward trend may continue to fall. 

For identifying and confirming price trends, traders often use technical analysis. By using technical indicators, they can determine when an upward or downward trend is changing and adjust their position accordingly. It is also possible to use trend following as part of a gold CFD trading strategy.

  • Day trading

A day trader holds a position for one trading session, responding to intraday fluctuations in gold prices. Since gold has a small spread between the bid and asks prices, it lends itself well to day trading. News events can help day traders determine the best time or day to buy or sell gold.

  • Price action trading

Gold traders use a price action strategy to determine when to enter or exit positions based on recent price movements. In contrast to most technical analysis-based strategies, traders do not review charts going back many years. Rather, they focus only on recent price movements. 

Also, traders can take advantage of arbitrage opportunities by buying the metal on one exchange and selling it on another by taking advantage of differences in gold price contracts on regional exchanges, such as the Shanghai Gold Exchange, and London Metal Exchange.

Gold market trading hours

What are the regular gold trading hours? It depends on whether you are trading on spot, futures, or options prices.

For instance, CME Globex provides electronic trading 24 hours/6 a days a week:

  • Sunday to Friday, 17:00 – 16:00 (CT) with the same gold futures and options markets open time and a 60-minute daily maintenance break each day from 16:00 to 17:00 (CT)

If you choose to join ISABullion.com, you can follow gold prices in US dollars live and trade spot gold CFDs during the following hours:

  • Monday to Thursday, 00:00 – 21:00 and 22.05 – 00.00  Friday, 00.00 – 21.00

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