Gold has traditionally been seen as a store of value, precisely because it is not subject to the whims of governments and central banks as currencies are. Gold prices are not influenced directly by either fiscal policy or monetary policy and will always be worth something – unlike a currency that can end up being almost worthless because, for example, of rampant inflation.
Gold can also be used by traders as a “safe haven”, along with assets like the Japanese Yen, the Swiss Franc and the notes and bonds issued by the US Treasury. That means that when traders are worried about risk trends they will tend to buy haven assets. On the flip side, traders tend generally to sell haven assets when risk appetite grows, opting instead for stocks and other currencies with a higher interest rate. This makes gold an important hedge against inflation and a valuable asset.
TECHNICAL ANALYSIS BEHIND GOLD TRADING
Technical traders will notice how the market condition of the gold price chart has changed over the years. Gold prices were in a sizeable trend from 2005 to 2015. Since 2015, gold prices have been trading in a defined range, changing hands between $1,000 and $1,400. If the market is trending, use a momentum strategy. If the gold chart is range bound, then use a low volatility or range strategy. This is a key ingredient in a gold trading strategy.
For those who prefer to use technical analysis, the simplest way to start is by using previous highs and lows, trend-lines and chart patterns. When the gold price is rising, a significant previous high above the current level will be an obvious target, as will an important previous low when the price is falling.
GOLD TRADING STRATEGY:
Trading gold is much like trading Forex if you use a spread-betting platform.
A gold trading strategy can include a mix of fundamental, sentiment, or technical analysis.
Advanced gold traders recognise that the yellow metal is priced in US Dollars and will account for its trend in their gold analysis.
Consider whether the markets are in “risk on” or “risk off” mode.
Look at the likely performance of the US Dollar as well as the gold price.
Consider a mix of fundamental, sentimental, and technical analysis.
Watch out for central bank buying or selling.
Consider the demand for gold jewellery.
Look at the industrial demand for gold.
And take account of the supply position.
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