Understanding the fundamentals behind gold trading
Gold trading can be hugely profitable when you understand its power and risks. Learn to adapt your Forex skills and make profits with gold.
Over the recent years, gold trading has become trendy online because of its slightly higher volatility compared to Forex. Few traders have mastered gold and secured positive gains from this commodity, but its large daily fluctuations in value have allowed many traders to acquire quick profit overturn. By knowing and understanding how the value of gold changes and its characteristics, gold trading can be very profitable when trading safely.
To trade gold on the common Forex trading platforms, it is most typical to trade XAU/USD. Trading gold against the US dollar can help us identify more fundamental correlations and build more solid trading setups.
Building your gold trading strategy
Building the strategy to trade XAU/USD is similar to trading Forex. Like any reasonable trading strategy, keeping risk low is a priority. It is ideal to use recognizable instruments which may easily be translated to the gold market to predict future prices, as gold has a tendency to create long-lasting trends.
As an example, various gold traders have discovered success adapting plans. Trend lines, Fibonacci analysis and other tools used within the Forex market can be adapted for the stronger and more violent trends with less consolidation that gold offers.
Main circumstances that influence gold
Gold is one of the more complex financial assets and commodities to estimate. Gold, in ways, is comparable to a currency like the US dollar or the Euro. Gold is enduring, portable, universal, everywhere the planet, and customarily trusted. Still, unlike these more regularly traded currencies, gold is not supported by an underlying economy of operators, businesses, and foundations.
In other ways, gold is a commodity like oil. It comes from the bottom and has regulated physical properties. Unlike other commodities though, the value of gold often fluctuates independently of its industrial supply and demand. Gold can be a safe-haven asset.
Due to this property, it builds confidence which, in today’s markets, affects price movements and trends. The more expensive gold becomes, the more trust and confidence more investors will have.
Gold bugs vs brutal ruins
Because of the properties of the gold market, the emotions and behaviours of retail traders tend to drive major short-term trends. Traders seem to be polarized on the value of gold.
There are guru “gold bugs” who think that the price of gold should be $10,000 per ounce, mainly because central banks around the world are devaluing their base currencies. Others are bearish traders who say that gold is simply “brutal ruins” of the past that ought to be worth closer to $100. This contrast between traders has led to more curiosity and more people trading gold on margin.
Things to consider when trading gold
The spread of gold within a currency pair is typically larger and has more volatility than most currency pairs. The lot sizes are often different and the risk is amplified with some brokers.
Gold trading conclusion
Overall, if you are attempting to keep risk low and trade gold or XAU/USD, you must understand its volume. Use the dollar as an important piece of the puzzle. With this knowledge you can predict trends and other factors that may determine the short-term value of gold.