Forex gold market: strategies for the precious metal trading
Today, the Forex market offers its participants great opportunities for earnings, and despite the fact that in the traditional sense, Forex used to be associated with trading in currency pairs, now it’s possible to operate with multiple liquid assets.
Precious metals, in particular gold, are an attractive asset for active trading. When trading gold, you don’t even need to purchase the commodity itself, you can use financial derivatives like futures or options to carry out trading activities.
The price of gold in Forex and other markets depends on the general state of the world economy, the economy of individual countries and regions, the geopolitical situation, and other factors that can be tracked by Fundamental analysis.
The yellow metal at all times, regardless of crises and economic downturns, has remained a reliable asset that can be used to hedge trading risks. Consider what are the features of trading shiny metal on Forex, as well as some tips from professionals for closing gold trades.
Factors affecting the gold price in the Forex market
If we consider the fundamental prerequisites that determine the dynamics of the market price of gold, then it should be noted that the noble metal is used in various fields. Firstly, it is used as an industrial raw material (for example, for the manufacture of various jewelry, and in the production of electronic devices). Secondly, gold is considered a financial instrument – a trading and investment asset that is bought and sold in the respective markets. For this reason, many traders and investors, both physically and online, include gold in their portfolios. In addition, this precious metal is traditionally used by the central banks of many states to form the necessary reserves.
Market participants react differently to the same circumstances that predetermine the exchange rate dynamics of precious metals. That is why the market value of gold is constantly under the influence of a large number of multidirectional factors, among which we can highlight:
- Demand for gold from central banks in the formation of reserves. Given the large scale of transactions made by financial regulators, the factor of change in such demand significantly affects the market.
- Monetary policy of the central banks of various countries. First of all, we are talking about the most influential structures – the US Federal Reserve System (FRS), the European Central Bank (ECB), the Bank of Japan, and other financial regulators, while an important role is given to the actions of these regulators in the field of changing key interest rates.
- The dynamics of the US dollar (USD) exchange rate is the most important factor that has a significant impact on the price of the precious metal.
- Industrial demand for this precious metal. We should not forget that gold is also used in the real sector of the economy.
- The situation in the field of gold mining. This is a key factor in the supply of precious metals in the market. However, its impact on the gold rate should not be exaggerated – you need to take into account the time interval for which such an impact is estimated.
Features of trading gold in the Forex market
Trading gold along with other assets has a number of advantages for a Forex trader. Consider the main ones:
- Hedging against inflation
Unlike government currencies, gold traditionally retains its purchasing power during periods of rising inflation.
- High liquidity levels
Gold is one of the most popular trading instruments secured with constant global demand and never-ending buy & sell deals.
- Hedging against international instability
In turbulent times in the global economy, gold performs well against other assets and has historically been considered a safe haven for traders.
- Speculating on the price of gold
Gold has always been considered an attractive trading instrument due to its historical volatility.
- Portfolio diversification
Gold may be of interest to those investors who want to balance investments in a diversified portfolio.
Instruments for gold trading in the Forex market
One of the ways to trade gold is a spot contract – this is a transaction that involves the direct sale or purchase of an asset with delivery and settlements in a short time for cash or another asset at the market price at the time of the transaction. In order not to waste time and money on the physical delivery of goods, traders can use derivative financial instruments such as:
Gold Contracts for Difference (CFDs)
With a derivative instrument known as a Contracts for Difference (CFD), traders can speculate on prices without actually owning physical gold, mining stocks, or financial instruments such as ETFs, futures, or options. The value of a CFD is the difference between the price of gold at the time of purchase and the current price. In other words, the value of a CFD increases as the price of gold rises.
CFD trading does not require the trader to pay monthly fees to store gold or roll over futures contracts, and there is no need to worry about the correct timing and size of market movements.
Gold futures trading allows traders to employ future fluctuations in gold prices through the purchase of exchange contracts. The futures markets offer liquidity for gold trading, and market participants can use the leverage to open larger trading positions.
A gold option is a contract that uses either physical gold or gold futures as the underlying asset. A call option on the gold gives the holder the right, but not the obligation, to buy bullion in the future at a set price, while a put option gives the holder the right to sell it at a predetermined price. The terms of the option agreement will specify details such as delivery date, quantity, and exercise price that is predetermined.
One relatively safe way to trade gold is to buy exchange-traded funds (ETFs). In fact, you do not operate with precious metals, but with security issued by the fund. ETFs themselves can invest in different ways: some purely in the precious metal, others in the securities of gold mining companies.
Stocks of gold miners
One of the most lucrative options for trading precious metals can be to buy stocks in gold mining companies.
This approach can be considered transactions with gold since the results of your trade depend on the exchange price of the mined metal. Stock quotes have a strong correlation with the price of gold. Their volatility is higher than the underlying asset, so when gold is up, stocks show a greater rise.
10 tips to boost your gold trading strategy
The gold market has some features that you should carefully study before you start trading. In any case, many traders and brokers highlight some principles of gold trading that will help to simplify it and reduce risks. Here are some of them:
- Day trading based on active trading hours in New York
Traders can buy and sell instruments in the gold market almost around the clock, but maximum liquidity can usually be seen during trading hours in New York. You can buy and sell an asset during or after the close of trading there, and the strategy will depend on your goals and the chosen instruments.
At the moments of maximum activity, gold possesses high liquidity, but at the same time, the volatility will be lower, which is suitable for hedging positions and using the asset as a safe haven. Whereas, trades, when the activity is not as high, will be more volatile and are great if you want actively trade with scalping.
- Trading in the range of previous highs and lows
Market participants can trade XAU (gold) /USD in the range of previous highs and lows, which will be one of the most convenient strategies among experienced traders: you enter a position in gold when it is in an uptrend and hope for the previous high to sell it or vice versa.
Gold is a fairly stable asset that will reach previous highs or lows over time. This strategy may not be suitable for active day trading as prices may move longer than expected, but it is still considered low risk.
- Consider the influence of geopolitics to protect yourself from risks
Gold and the US dollar are moving in opposite directions: when traders actively buy USD, gold quotes fall, and vice versa. Thus, when trading yellow metal at a time of concern about the price of the currency due to the political or economic situation, gold can become a safe haven to protect your liquid assets.
Gold is highly correlated not only with the US dollar, but also with other stable currencies such as the Japanese yen, and opening a position with XAU/USD can also help diversify your trading portfolio.
- Use a symmetrical triangle for analysis
The triangle figure is a pattern formed on the price chart. It is usually identified when price tops and bottoms move towards each other, like the sides of a triangle. When the upper and lower levels of the triangle interact with price, traders anticipate a possible breakout. Thus, many breakout traders refer to triangle formations to find entry points.
Also, market participants use the symmetrical triangle pattern along with other technical indicators such as liquidity or relative strength index. When other indicators point to a potential price breakout, a symmetrical triangle can help reassure and increase confidence in placing an XAU/USD order.
A stop loss order can be placed just below the downtrend line after the two trend lines converge, and sell orders can be placed if the price breaks in the desired direction of XAU/USD.
- Keep track of industrial and commercial demand for gold
High demand during a limited fixed supply of gold in the world can change the price of this metal. Various firms can actively buy gold if they expand their production or, for example, increase the production of medical products in the event of a pandemic situation. Global demand, and its prices, can also be affected by the fact that gold is not only an asset but also a luxury item.
- Check the policy of the Central Bank
Central banks buy gold to hedge risk when they expect volatility in certain currencies. When central banks begin to buy gold in large quantities, it tells traders that governments are making decisions based on the forecast of major currencies to fall, which gives traders a signal to buy less volatile assets.
In addition, an increase in central bank purchases most often drives up the price of gold in the short term. If gold prices start to rise, this could be an opportunity to enter a good deal.
- Monitor interest rates
Gold and real interest rates are inversely related. When rates are high or rising, traders and investors leave gold for other assets and metal prices fall, but when interest rates are low or falling, market participants turn to gold, which can drive its prices up. By observing how interest rates change over time, a trader can determine a good time to buy an asset.
- Refer to moving average crossovers
There are not so many tools in the world of trading that market participants use, but moving averages are one of them. For example, if the 50-day moving average crosses the 200-day moving average, this is a sign of an emerging bullish trend.
When the market is in a downtrend, the 50-day moving average is below the 200-day moving average. The golden cross gives us a clear signal when traders should go short or long, acting as a trend filter.
- Keep in mind the volumes in gold mining
Most observers of the gold market consider changes in the volume of its production one of the most important factors affecting its price. Gold bulls use the inability of miners to increase production as an argument in their forecasts for price growth, and bears argue that an increase in production of the yellow metal will eventually break the gold bull market.
The available reserves of gold have already been mined and placed in the global reserves, while the rest is much more difficult to mine, reducing the financial potential for mining enterprises.
However, limited production is not a sign that gold is poised for a decline, as stable gold production could dampen global demand and drive up prices, especially if central banks and other regular market participants start buying up the asset.
- Use gold seasonality
Traders may observe seasonal fluctuations in the price of gold (seasonal patterns), such as the increase in gold prices in the first and last months of the year and their decline in the rest of the time. A trader can open a position when the price is trending up and then sell it higher: this decision must be supported by technical indicators, chart patterns, and other settings.
Social and Copy trading with gold in the Forex market
Trading gold may seem like a complex task, however, everything becomes much easier if you follow the main trends, use Technical and Fundamental analysis, and also try a trading demo account for practice. In addition, in order to simplify the study of the market if you are not yet confident in your abilities, or for having a passive income, traders have the opportunity to use Social and Copy trading.
While with copy trading services you can both receive signals and independently mirror trades of professionals, as well as connect automatic copying, with Social Trading you can join to a network of experts not only for communication but also for the cooperative conclusion of transactions.
For example, the world-famous broker NAGA Markets offers an auto-copy function through its platform to follow and copy the best market participants who are masters among thousands of traders. The auto-copy feature helps you mirror their trades, strategies, and actions with just one click, all you have to do is find the trader you want to auto-copy.
eToro is another popular broker that provides a platform for social trading and investing, as well as the ability to copy trades. The eToro CopyTrader allows you to automatically copy trades from other users. To do this, just subscribe to the trader and indicate the amount you want to invest in his portfolio. Also, with the CopyPortfolios function, you can subscribe to a whole group of traders, which allows you to diversify your investment without spending time studying each account separately.
VPN for safe gold trading in the Forex market
Many professional traders understand the importance of security and privacy when trading various assets on the Forex market, and for this purpose, they use Top VPN services.
VPN providers allow traders to use military data encryption algorithms on the Internet and show not their own, but a fake location, thereby protecting information about themselves from prying eyes.
Click the button below to get the best VPN deal for Forex trading:
In addition, VPNs prevent other sites from collecting information about you (your gender, age, etc.) and then transferring it to advertising sites. Also, thanks to the service, your personal information will be protected when using Wi-Fi in public places. The fact is that by using open Wi-Fi, we become vulnerable. Connecting to a network somewhere in a park or in a cafe, our devices become an easy target for hackers and they can find out literally everything about us, down to bank passwords and personal messages.
Top Forex brokers for gold trading
Trading with precious metals has a number of features and trends, and with a well-thought-out strategy or copying it from professionals, gold is a popular trading instrument among traders. Top Forex brokers allow clients to participate in gold trading through CFDs, gold futures, and options, as well as gold mining stocks and ETFs. Also, if you are new to the market or want to work out a strategy, you can try demo accounts of internationally trusted brokers with a virtual balance and conditions identical to real ones.
Besides, many professional traders advise opening several accounts with different Forex brokers, which will help not only to hedge risks but also to compare different trading conditions and receive all kinds of Forex bonuses up to 100% on your deposit.
Exness Forex gold trading
Exness is one of the largest brokerage companies that provide trading in many popular instruments such as currency pairs, stocks, indices, metals, energies, and popular Cryptocurrencies to clients around the world.
Exness has several terminals to choose from for any requirement and need including Meta Trader 1, MetaTrader 4, MetaTrader 5, or MetaTrader WebTerminal. In addition, to stay up to date and follow the market movements, Exness has developed a mobile app for iOS and Android. Also, those wishing to increase the connection speed can use the VPS service from Exness.
Among trading accounts, clients can find standard retail, and professional ones, as well as a demo, to hone their skills and test their abilities with a virtual balance without losing real money.
Exness has been providing its services for more than 13 years and during this time the company has established itself as a reliable brokerage provider, which is confirmed by licenses from such regulatory bodies as FCA, CySEC, FSCA, FSC, FSA, and others. Try trading with Exness using our dedicated button below.
HF Markets Forex gold trading
HF Markets, formerly known as HotForex, is an international Forex broker that offers favorable conditions for gold and other assets, namely flexible leverage, low spreads, and no hidden fees. In addition, traders can trade CFDs on currencies, commodities, stocks, indices, Cryptos, and other instruments.
Clients can work on 4 accounts: Premium, Zero Spread, HF Copy, and Premium Pro. The minimum deposit for a zero spread account is $200, while on a Premium account you can start trading with $100. In addition, newcomers can always practice trading with a free demo account.
With HF Markets you can access the market using MT4 and MT5, both of which are available for desktop, web, and mobile versions for Windows, iOS, macOS, and Android. Also, HF Markets provides VPS service to insure against a sudden power outage or other technical issues.
HF Markets is mainly regulated by such reputable and well-known bodies as CySEC in Europe, FCA in the UK, FSCA in South Africa, DIFC in Dubai, and SFSA in Seychelles, allowing it to provide its services worldwide. The company holds various promotions and seasonal offers, which you can get by clicking the special button below.
XM Group Forex gold trading
XM Group has more than 1000 financial instruments which can be traded on the MT4/MT5 platforms, including precious metals like gold and silver, Forex pairs, equities, commodities, and other instruments with some of the best conditions.
The broker has 3 types of live accounts: Micro, Standard, and XM Ultra Low. The Micro and Standard accounts are identical, with the only difference being that the first one is traded in micro lots, so it is ideal as a start for beginners from a practice account to a real one. In addition, XM Group offers an unlimited in-time demo account with a virtual balance of $100 000 that has the full functionality of real-time charts, graphs, and market situations to accurately predict results and make your strategies as close as possible to live to trade.
In terms of regulatory oversight, XM Group is licensed by institutions such as ASIC (Australia), CySEC (Cyprus), and DFSA (Middle East). It is important to mention XM Group offers three types of bonus programs, complementing them with free VPS and zero commissions for depositing and withdrawing funds. You can get a 100% Forex bonus on your first deposit by clicking on the button below.
AvaTrade Forex gold trading
AvaTrade is the largest trading platform offering to deal with valuable metals (gold, silver, platinum) using CFDs. In addition, traders can choose from 1250 instruments including stocks, securities, indices, commodities, and currency pairs, as well as try their hand at buying and selling different Cryptocurrencies.
AvaTrade offers many different trading platforms for different purposes including MT4, MT5, AvaSocial, AvaTradeGo, AvaOptions, and WebTrader. Besides, so that your trading is not tied to a computer, the broker has developed a mobile application for iOS and Android.
For the convenience of traders, there is only one type of real account, the conditions which are selected by the market participant himself, depending on the chosen underlying asset and trading strategy. A demo with a virtual balance of $100 000 is also available for both novice traders and market professionals.
For time-limited traders, the AVATrade broker offers several auto trading services: DupliTrade is an MT4 compatible platform that allows traders to automatically follow the signals and strategies of more experienced market participants in real time; ZuluTrade is a special platform for automatic trading, which independently selects strategies and takes into account expert advice.
AvaTrade is a registered and regulated broker that complies with the most stringent requirements of regulatory bodies such as MiFID, ASIC, Japan FSA and FFA, FSB, IIROC, and FSCA. Try trading with AvaTrade and get a special offer from TopForex.trade by tapping on the button below.
Plus500 CFDs gold trading
Plus500 gives you the opportunity to enjoy trading CFDs for precious metals, as well as a whole bunch of instruments such as currency pairs, indices, commodities, Cryptocurrencies, stocks, options, and ETFs on a real and demo account. The latter allows you to work out new strategies, and try unfamiliar tools, test indicators, and advisers.
The list of trading terminals from Plus500 includes Web Trader for Windows and macOS, Metatrader 4, as well as mobile versions of terminals for smartphones and tablets. To replenish the deposit, the following methods are used: bank transfer, debit and credit cards VISA and MasterCard, and electronic wallets (Skrill, PayPal). Similar methods are available for withdrawing money. Support is available 24/7as well as all languages into which the site is translated.
Plus500 works with traders worldwide and is regulated by FCA (UK), CySEC (Cyprus), SFSA (Seychelles), AFSL issued by ASIC, FSP issued by the FMA (New Zealand), MAS (Singapore), and Authorised Financial Services Provider license issued by the FSCA (South Africa). Try trading gold with Plus500 by clicking on our button below.
eToro Forex gold trading
eToro is a trading platform and a social network with a service for copying deals of the best traders (social trading). It is possible to use contracts for difference (CFD) on stocks, commodities, and indices, ETFs, currency pairs, Cryptocurrencies. The broker has no transaction fees or other hidden fees. You can connect to the auto-follow service, or become a trader yourself and receive money for subscriptions to your account.
Market participants have access to two types of accounts: retail and professional clients. The first has full access to all trading instruments and the CopyTrader tool with negative balance protection, and the second enjoys unlimited leverage. In addition, the company has its own trading platform, available in a personal account and as a mobile application for Android and iOS.
eToro is regulated by the Cyprus Securities and Exchange Commission and is licensed by the following organizations: ASIC, CySEC, and FCA. You can learn more about all the conditions of the company and try gold trading right now with a special offer from TopForex.trade by clicking the button.
Forex gold trading tips - FAQ