FxBrokerReviews.org – Gold trading has grown in popularity in the past few years as investors are finding safe and less risky investment options. Gold turns out to be a stable investment option as it hedges against inflation, is usually unaffected by market instability, and also has high returns if invested correctly.
As an internationally recognized part of the forex market, gold trading online is represented as XAU. Trading the yellow metal in the forex market is a great way for metal traders to get exposure to the commodity and diversify their portfolios.
Precious metal trading has a lot of advantages due to its resistance to dramatic market swings. But many traders find it difficult to take advantage of the price fluctuations and movement of the commodity prices. It can be either due to lack of experience, hasty decisions, or lack of educational resources.
If you are looking to benefit from trading gold forex then, here are all the tips for trading gold forex (XAU/USD).
What is Gold trading?
If you are familiar with commodity trading then the job is half done. Gold trading in simple terms means the exchange of gold in the forex market against the price fluctuations of the commodity. It involves speculating the price of gold in order to make a profit. Gold can be traded using futures, options, shares, and ETFs. The transactions of online metal trading are though settled in cash but can be invested in the form of physical gold bars or coins.
Can you trade gold in forex?
Using the currency pair XAU/USD you can start trading gold forex. To trade gold in the forex market you have to open an account with a forex broker, that will help you speculate the price fluctuations. Most Forex brokers offer to trade in spot Gold priced in U.S. Dollars, and some of the brokers also allow trading Gold priced in other major currencies such as the Euro or the Australian Dollar. Almost every Forex / CFD broker offering Gold allows trades as small as 10 ounces of Gold and a few even go as low as 1 ounce.
Best tips for trading gold forex (XAU/USD)
We have already discussed the advantages of trading gold forex. It provides stability, is a safe investment, and handles the swings of the market. If you are ready to invest in gold here are some useful tips to keep in mind;
- Track the demand of gold
For gold as well as silver traders it is crucial to keep a check on the demand of gold in the industry as well as in the commercial sector. Increased demand of gold can affect prices due to its fixed global supply. Consumer demand for gold jewelry can also affect prices. Also, keep in mind the global demand of gold in foreign markets where the commodity is treated both as a luxury and an investment.
- Understand the Geopolitical impact on the currencies
Often the currency prices are affected by the political or economic uncertainty. Gold can be considered to be a safe haven and stable option that will protect your liquid assets.
As gold is strongly correlated to the U.S. dollar, as well as other currencies like the Japanese yen, it can be a reliable way of protecting your assets from unpredictable situations that affect other forex markets.
- Consider the New York Trading Times
Trading gold forex is though a 24 hour market, but it peaks during the New York trading hours the most. Also, the overlap of the trading time of the London and New York market (12:00–16:00 GMT)is the most attractive time for most of the metal traders due to high volume, liquidity, and, volatility.
- Analyse by targeting the previous highs and lows
XAU/USD is often traded in a range so a risk-less option would be to identify the buying or selling opportunities within previous highs and lows for the trading pair. However, it is not a feasible option for day trading as it takes time to reach these targets and don’t offer quick profit momentums.
- Use the Symmetrical triangle
A symmetrical triangle is a chart formation in which the price high and the price low slope come together to form a point which looks like a triangle. Most traders use this tool to indicate a price breakout. The symmetrical triangle increases the confirmation of a price breakout and traders get the confidence of placing an order on XAU/USD.
- Monitor the buying of the central bank
When the central bank starts buying a lot of gold, it is an indication to the traders that the currency value may take a dip, thus encouraging traders to invest in precious metal trading. Alternatively, an increase in the central bank buying causes an increase in the price of gold for a short term. An increase in gold prices makes a good opportunity to turn a quick profit.
- Keep a check on the interest rates
Gold prices and interest rates are conversely related, meaning when interest rates rises, gold prices fall and when interest rates falls, gold prices tend to increase. By keeping a check on the percentage of the rise and fall of interest rates, you can detect trading gold online opportunities.
What moves gold prices in the market?
Gold prices similar to all commodities move depending on the demand and supply chain, economic and political factors, and more. Let us get a deep understanding of all the factors that influence the precious metal trading :
- The US Dollar: gold is priced in the US Dollar, so if there are any fluctuations in the US dollar can significantly impact the price of gold.
For example: If the US dollar fell in value, someone looking to buy gold in another currency would have an advantage.
- Demand in the industry: Gold is not just used for trading, but has a huge demand in the industry in the form of jewelry, technology, and more. So, if the industry demand is constant and stable then metal traders would find less fluctuations in the price of the commodity.
- Economic and political conditions: Any uncertainty in the economic and political conditions of the country can lead to severe changes in the price movements of all precious metal trading, let alone gold.
For Example, political unrest or a war in the country, or even the recent coronavirus pandemic had led to extreme fluctuations in the price of gold.
Trading Gold Forex : Risks and Management
Before you start investing in online metal trading, here are a few risk factors that you should keep in mind :
Liquidity and Timing
The commodity market is open for a longer duration, and the timing is intentionally long so that the gold, silver, or any other commodity prices can be matched with the international prices in the European and US markets.
But due to this sometimes there are fewer market participants and it gives rise to the risk of the commodity contract expiring before the seller finds a buyer. Once the contract expires, it is of no value.
Supply and demand
Like any other commodity trading, when demand is up and supply is down price increases, and if supply increases and demand drops, prices will fall. Half of the demand for gold is driven by jewelry production, while another 40% comes from investors. Therefore, you have to be careful about the changes in the market and avoid making hasty decisions.
Security concerns
For traders who are either investing in physical gold or silver, security serves as a major risk factor. A physical possession comes with a risk of theft for silver traders as well as gold. To manage this risk one can go for digital gold or virtual assets. It holds the same benefits as physical gold but is a much safer option.
How to start gold trading online?
- Learn about trading and investing in gold
The first step should always be about understanding the market you are going to invest in. if you jump into trading without having the knowledge you can be easily exposed to risks and uncertainties of the market. Also, there are several types of gold assets that you can trade in;
- Gold bullion: physical gold coins, or bars.
- Spot Gold: the spot price of gold is how much it would cost to buy it on the spot.
- Gold EFTs: ETFs keep track of the movement of shares of publicly traded gold mining, refining and production companies.
- Gold Futures: it is similar to a futures contract, where the trade is executed at a predetermined price, but at a future date.
- Gold stocks: investing in gold stocks means buying or selling the stocks of industries that deal with gold. Like mining, manufacturing, sales, and production.
- Decide between trading and investing
If you are a beginner then it is crucial to understand that there is a difference between trading and investing when it comes to precious metals trading. Let us understand when to trade and invest you can make your decision.
| Trade when | Invest when |
|---|---|
| You want to speculate on the rise or fall of the gold price | You want to get dividends and voting rights of a company |
| You want to trade without owning the asset | You are looking for a long term position in the market |
| You want to hedge your portfolio | You want to diversify your portfolio |
| You want to take a short term position | You want an ownership of the underlying asset |
| You don’t want to trade through EFTs and stocks | You want to explore buying and selling in stocks and EFTs |
3. Create a trading account with a broker
After you have understood your trading requirements it is time to get started. You need to register yourself with a reliable and experienced broker. Know about the best forex broker here. Once you have completed the registration process, you can open an account by depositing a minimum balance to get started or you can avail the facility of a demo account.
4. Open your trade
There are a variety of gold markets in which you can start online metal trading, like proprietary spot prices, futures contracts, and options. Alternatively, you could indirectly trade gold via company stocks and ETFs. Whichever gold market you decide to trade, it’s important to think about whether you’ll go long or short, what position size you’ll take and how you will manage your risk.
5. Monitor your trade and close it
Once you have opened a position, with the various tool provided by your broker you can keep a track of the price fluctuations and monitor your trade accordingly. Whenever, you feel is the right time to close the trade you can close it with the help of your broker.
What is the best time for trading gold forex?
The forex market where the yellow metal is traded is open from Monday to Friday, 24 hours a day. It allows trading as per the convenience of time and place. However, this does not mean that all time is considered beneficial for the the metal traders. It is best to trade during the most active hours of the market. The hours when XAU/USD is traded in high volume is the best time to start trading. The price of Gold moves the most between Noon and 8pm London time, overlapping the hours when markets are open in the U.S.A. therefore, it is suggested that the best time to trade Gold, whether as options, EFTs, Physical assets , Gold futures, or XAU/USD is from Noon to 8 pm London time.
Is online metal trading safe?
Yes, it is a safe option. But safety comes down to the point of the investment decisions you make. While gold is considered to be a safe haven assets and is know for its stability, the price fluctuations due to external factors can leave you exposed to potential risks and uncertainties.
Final thoughts
It is definitely worthwhile to invest in gold as it a stable investment. Today, almost every forex broker provides gold trading online. Profitable Gold trading can be best achieved by applying technical analysis along with some fundamental tips and tricks that will keep you updated with the market. If you haven’t already started trading gold then, here is your sign! Happy trading!
