Learn to Trade Gold: A Forex Trader’s Guide
Gold is a safe haven asset that has given huge returns to investors and traders throughout history. The yellow metal is traded in many ways in the financial world. At present, traders are increasingly trading gold in the foreign exchange market.
Market Investopedia wants our readers to stay ahead of others and take benefit of maximum opportunities. So, in this blog, we will discuss forex gold trading and why people prefer trading gold in the forex market.
Understanding Forex Gold Trading
Gold trading is the buying and selling of gold to make money from price changes over a period of time. The concept of gold trading is very old; earlier, people used to buy gold at a low price, store it for a considerable period and then sell it at a higher price.
With the modernization of trading, now you don’t need to store physical gold. Traders can trade gold options, gold futures, gold ETFs, and gold CFDs. Gold Forex is also one of the ways to trade precious metals, and it has become increasingly popular.
Forex Gold trading refers to buying or selling gold against a centralized foreign exchange currencies to take advantage of its price movements over a period.
The price of gold is measured against a currency. When traders feel that gold prices will rise against a particular currency, they buy gold against that currency and sell it in the opposite scenario. In the forex market, gold is represented as XAU. XAU/USD, XAU/GBP, XAU/EUR and XAU/JPY are the popular gold trading currency pairs.
How To Trade Gold
Confused? Not to worry. Let us understand gold trading with an example. XAU/USD is the most popular, highly liquid and volatile pair. Now, suppose a trader was watching the forex gold trading chart.
Gold prices hover near $2650. According to traders’ analysis, due to political unrest in the United States, the US Dollar is all set to fall against the XAU. So, the trader opens a buy position in the pair with the following trade criteria.
Trade Entry Price: $2650
Trade Exit Price: $2680
Stop Loss Level: $2640
In this case, if the trader’s analysis becomes true, the profit will be around $20 Dollars and if not, then the trader suffer a loss of $10. As the chances of losing money are also there, so a trader should fully understand the risk involved in gold trading before starting:
Factors that influence Gold Forex Trading:
Forex Gold trading is all about predicting the rise and fall of gold against forex currencies. However, how will you predict the prices? Below are the factors that you need to watch to identify buying and selling forex gold trading live market opportunities:
Supply and Demand:
Gold is a finite asset with limited supply and availability. Whenever the supply is more than demand, the gold price falls, and when supply decreases, then it rises. So traders need to keep an eye on the activities of gold mining and extraction companies, as well as news and import and export data. Traders can watch sites like World Council, Staistica or Gold Hub to track it.
Economic Events:
Traders should keep a watch on interest rates, central bank announcements, economic data, manufacturing reports, employment rates, GDP data, and import and export reports. Suppose you are trading EUR/USD, so you need to keep an eye on the economic conditions of the EURO Zone.
Natural and Man-Made Disasters:
The supply and demand dynamics for gold disrupts due to the occurrence of natural and man-made disasters. It ultimately leads to an increase or decrease in gold prices. So, gold forex traders need to watch political unrest, technological disruption, wars, floods, tsunamis and other similar events.
A quick glance
Forex Gold trading refers to buying or selling gold against a centralized foreign exchange currency to take advantage of its price movements over a period.
Yes, you can trade in gold in the currency market against centralized currencies like USD, GBP, JPY, EUR and many others.
Gold Traders can take advantage of currency correlations, high liquidity and significant volatility. Also, forex allows traders to trade 24/5 in a decentralized market.
Supply and Demand Dynamics, Economic Events and Data, Natural and Man-Made Disasters, and Geopolitical Factors influence forex gold trading.
Yes, Gold forex trading involves a risk of losing money with the probability of earning profit.
The best time for Forex Gold trading depends on the currency pair. For trading XAU against USD, the US session hours are the best to trade.
Why People Trade Forex Gold:
Forex Market Correlations:
Gold is a financial instrument that observes correlations with different currency pairs, like the most famous negative correlation between the Dollar USD and Gold. The value of USD tends to rise when gold falls and vice versa. So, traders can take advantage of these correlations and plan their trade accordingly.
Simplicity, Flexibility and Suitability
Forex is a decentralized market that remains open for 24/5 days. Traders can trade in gold over the Internet at any time from anywhere. Also, due to the absence of central authority, there are not many rules and guidelines for trading gold. So traders can trade in gold in a friendly environment without any restrictions.
High Liquidity and Significant Volatility:
Gold Pairs like XAU/USD and XAU/EUR are highly liquid. This means that the pairs provide ease in opening and closing positions at the desired price. In addition, gold is a highly sensitive asset to the market conditions. Its value significantly rises and falls over a period, providing numerous opportunities to traders.
Hedge against Inflation:
Gold is also known as a safe haven asset and tends to rise or remain the same during the crisis. During economic uncertainties, inflations, war, and natural disasters, forex currency prices fall. So, during such events, traders can trade gold against these currencies and make money even during a falling market.
Global Adaptability and Acceptance:
When it comes to currency trading, not all pairs are suitable for a trader. A currency pair choice differs from market knowledge, time frame and acceptance. However, gold is an asset that is accepted all around the world. So, forex traders, regardless of their country, can trade it.
Bottom Line
Gold Forex Trading is the most suitable option for trading gold in modern times. Traders can trade in gold without owning the underlying asset and in a non-restricted environment. Also, traders can hold a trade position for seconds, minutes, hours, days, or months. So, the forex market is suitable for both short-term and long-term traders.
However, trading gold in the forex market requires in-depth market understanding, proper strategy, analysis, and money and risk management skills. So join Market Investopedia to enhance your market knowledge and start your Forex gold trading today.