How to Trade Gold in 4 Steps
GOLD has a unique position in the world’s economic and political systems. It offers high liquidity and excellent opportunities to profit in nearly all environments.
Trading in Gold isn’t hard to learn, but not all investment vehicles are created equal.
You can choose the best way to acquire gold, directly in physical form or indirectly through futures or a gold ETF, which offers incredible leverage with measured risk.
If you want to start trading Gold or add it to your long-term portfolio, there are four easy steps to get started.
1. What Moves Gold
First, understand the fundamentals that drive the price of gold. Get a long-term perspective on some market psychology.
As one of the oldest currencies on the planet, nearly everyone has an opinion about gold, but it reacts to a limited number of price catalysts.
Each of these forces impacts sentiment, volume, and trend intensity:
— Inflation and deflation
— Greed and fear
—Supply and demand
2. Understanding the Crowd
Gold attracts numerous crowds with diverse and often opposing interests from physical bullion to family assets, gold equities, options, and futures.
Gold adds enormous liquidity because they provide a continuous supply of buying interest at lower prices.
It also attracts enormous hedging activity by institutional investors who buy and sell in combination with currencies and bonds in strategies known as “risk-on” and risk-off.”
3. Study the Historical Chart
Take time to learn the gold chart inside and out.
Gold’s history shows little movement in the 70s. The downtrend lasted into the late 90s.
In 2011, gold topped out and entered the historic uptrend when central banks intensified their quantitative easing policies which culminated in February 2012 top of $2,235 an ounce.
However, a steady decline since then has relinquished around 600 points from gold in four years.
4. Types of Trade Execution
Liquidity follows gold trends, increasing when it’s moving sharply higher or lower, and decreasing during relatively quiet periods.
This impacts trade executions within short-term positions, forcing higher costs through slippage.
The SPDR Gold Trust Shares (GLD) show the greatest participation in all types of market environments with exceptionally tight spreads.
The average daily volume stood at 13.65 million shares per day in May 2022, offering easy access at any time of day.
Meanwhile, the VanEck Vectors Gold Miners ETF (GDX) provides greater daily percentage movement than GLD, but carries a higher risk because the correlation with gold can vary greatly from day to day.
In summary, here’s how to trade the gold market:
First, learn how three polarities impact the majority of gold buying and selling decisions.
Second, familiarize yourself with the diverse crowds who focus on gold trading, hedging, and ownership.
Third, take time to analyze the long and short-term gold charts, with an eye on key price levels.
Finally, choose your vehicle for investment and focus on high liquidity and easy trade executions, while minimizing risk.