What is the best strategy for gold trading?

Gold has always been referred to as the 'safe haven' at the times of crisis and uncertainty for the traders.

12:22 23 July 2019

To make a mark in the market, you need to possess a good gold trading strategy that you can abide by.

Here we have enlisted some of the strategies that may prove helpful to the traders.

● Relationship between gold and foreign exchange

Gold is portable, divisible, scarce, and easily verifiable. Owing to these traits, the metal has gained much more reputation among trading industries rather than the metal industries. Each unit of the metal is worth the same amount to everyone, and thus, makes it tradeable.

Gold is mostly traded in US dollars, which is why the movement of the dollar in the market is an important aspect to be kept an eye on. More often than not, the gold price and currency pair work in a similar fashion all across- when one goes up, the other goes down and vice versa.

● Relationship between gold, inflation and interest rates

A crucial site for analyzing the gold market is around the monetary policy and central banks. Any announcements that concern printing of money, quantitative easing often influences the price of gold. As already stated, the relationship between gold and US dollars, the former is highly influenced by the US consumer Index.

Therefore, the traders should religiously monitor the real interest rates, i.e., interest rate minus inflation. It keeps into consideration both the variables.

● Fundamental analyses

The sentiment of the market is a huge driving point in gold trading. This is primarily because it is a place for investors to invest in the most uncertain times. Generally, when the market feels positive and optimistic, it is said to be a bull market. While a negative outlook of the market which expects price fall is referred to as a bear market.

Since gold has minimum volatility and can be stored, its price tends to perform much better in the bear markets. The market is driven by more than one factor, and therefore, it is essential to be mindful of the drivers of the market.

● Technical analyses

Technical analysis in gold uses the historical price graph to determine patterns that indicate future trends. It is no different than any other technical analysis. To ensure the accuracy of your review, you can even confirm the findings by carrying out a similar analysis for other gold-related securities.

A matching result will give you confidence on any downtrend or uptrend. The baseline is to be able to read previous trends and predict future highs and lows effectively.

● Pivot points

To calculate a pivot price, you need to simply find an average of low, high, and closing price of the given security. It helps in isolating the price at which the market sentiment is predicted to change. Most pivot points are used to analyze the support and resistance levels.

If the calculated number is found lower than the spot price of the metal, then it can be said to be supportive of it while it is resistance when found below the spot price.