A Detailed Guide on How to Trade Gold

gold trading

Gold has been a popular metal for trading and exchanging for ages. It has a rich history, and it is known globally for its value. The history of Commodity trading, especially gold, dates back to 2000 BC. During this period, the ancient people of Egypt started mining precious metals. 

People have continued to reserve or hold gold due to various factors, which we will discuss later in the guide. If we look at the worldwide supply of gold, then it comes out to be 170,000 tonnes. This production triples every year since 1970. All counties have kept gold as a currency reserve for years due to its reliable value. 

In the past, societies and now economies have pushed the value of gold. It is the main reason why gold has retained its value over the years. This is the only precious metal we fall back on in economic crises or when other currency fails. It means that gold is insurance against hard times. In this guide, we have covered everything you required to know. 

History of gold and why it holds value 

Gold is a bit different from that of coins, paper currency, and other financial assets as it has sustained its worth throughout the ages. Almost everyone sees gold as an excellent method to preserve and transfer their wealth from one generation to another. For ages, people have admired the unique properties of this precious metal, which are:

  1. The beautiful and unique colour of gold is also the main attraction for most people.
  2. You can melt it over the flame, making it effortless to work with and transform it into a coin. 
  3. It does not rust. 
  4. Scientifically speaking, the electrons of gold mover fast, and its atom is also heavier. Due to this fast election motion, gold absorbs some light. You can understand the entire process through Einstein’s theory of relativity. 

What moves gold?

Many factors influence the price of gold. Thus, it is important to incorporate all these factors in your gold trading plan or gold trading strategies to harvest maximum from this market. Besides integrating them into your plan, it is also important to follow technical analysis on volume and price charts. Let’s look at these factors:

1) Law of demand and supply 

If you look at the average gold volume per day, you will notice that almost half of the worldwide demand is from jewellery production. The remaining 40% comes from investment accounts. Thus, to conclude, we can say that when the demand for gold rises, supply goes down, and hence price rises. In contrast to this, when the demand for gold drops, supply surges, and hence, the live price declines. 

2) How volatile is the market 

To check the market volatility, you use trading signals offered by the broker. Through this, you can check the real-time value of market shifts on charting software. Stock market and gold trading are inverse to each other. When stocks do not perform, traders shift towards gold. Similarly, when forecasts of the stock market are strong, gold prices decline. 

3) The economic conditions 

Have you seen the history of gold prices? If yes, you must have noticed that the geopolitical forces drive today’s gold predictions. Any uncertainty in stocks, indices, and other assets will lead to a surge in gold prices as businesses will try to shift to a relatively stable and reliable asset such as gold or silver. 

How gold trading works? 

Before signing up for an online brokerage account, there are some crucial things that you should pay heed to. Gold trading today offers numerous investment options to traders and investors. These are as follows: 

1) Gold certificates

Gold certificates are similar to banknotes and came into the limelight in the 17th century. They reflect ownership. 

2) Gold ETFs

Traders purchase Gold ETFs or exchange-traded funds from the stock exchange or broker. They enable traders to purchase a pool of commodities or security without the need to buy individual assets. They are relatively cheap, but the price of gold influences their value. 

3) Gold CFDs

Gold CFDs or gold contracts for difference are usually short-term trade offers for selling and buying a specific amount of gold. They have a fixed date of expiry. The profit from these contracts depends on the variations in the price during the interval of the contract. 

4) Gold futures

Micro futures and gold futures agreement is similar to any other legal contract. Here both the parties (buyer and seller) decide to buy or sell the commodity at a fixed price on a particular future date. Leveraged trading is allowed in gold futures as traders can trade them on exchange trading platforms. This margin is undoubtedly more than investing in gold (physical). Profit depends on the variation in the price of gold between the time parties signed the agreement and the fixed expiry date. 

5) The gold bullion

Gold bullion is nothing, just physical gold, usually in the form of coins or bars. The worth or value attached to this precious metal depends on the unit weight or the kind of bullion. However, holding gold is quite easy compared to obtaining large quantities of sugar, oil, corn, or any commodity. There are storage costs, transaction charges, and insurance with such products. 

6) The gold swaps

Have you heard about customer contracts. Swaps are custom agreements only and are traded OTC or over-the-counter. Conversely, options and futures agreements are traded via central exchanges. 

Points to be considered before investing in gold 

Here are some basic things which traders should consider before trading gold. 

1) Long-term view: Gold is an extremely volatile commodity and is usually subjected to sudden price shifts. However, this precious metal also has a long trading history. Traders should always take a long-term view of where this precious metal is heading and what level they can attain in the future. 

2) Physical gold: Most traders usually avoid investing in gold (physical) as it is relatively simple to gain exposure through ETFs or stocks. However, traders who invest in physical gold explain that it is a store of value that comes out as a wonder in inflation. 

3) Purchasing size: It is the first and foremost step. You should decide the size you wish to trade or the exposure you wish to have. We have seen many traders carrying away and holding an oversized trading position in precious metals. 

4) The United States dollar: The change in currency or forex market prices impacts the gold prices significantly. Mainly, gold trading is affected by the United States dollar. 

Gold trading strategies 

For harvesting a decent amount from the financial market, there are some strategies that you can follow:

1) Closely monitor the central bank’s actions: Continuously monitor central banks’ selling and buying actions. 

2) Stay up-to-date with the market and financial news: Today, you can precisely predict the future market price and successfully place accurate bids through financial news. 

3) Check newsletters and blogs: Regular newsletters, discussion forums, and blogs are excellent ways to obtain trading advice through experts and professional traders. 

4) Try a virtual or demo trading account: Many financial service providers offer virtual or demo trading accounts through which you can practice trade before entering the real-trading market. This account is absolutely free for a limited period which HFTrading. They offer fixed virtual cash to pursue trading through the account. 

5) Ebooks and financial market courses: You can boost your trading knowledge and skills through various tutorials, articles, and videos. The broker also provides these courses. TradeATF is known for its online top-class and highly informative trading courses. 

6) Gold trading through robots: You can go for automated trading robots if you do not have much time to set regular bids. It is an efficient method to put your gold trading starting in action. 

7) Use fundamental, technical tools and research tools: You can use fundamental and technical analysis tools to predict the future market price and act accordingly. It mitigates the trading time and helps in reaching a potential trading decision. It may include price charts, graphs, Fibonacci, moving averages, and several others. Apart from these fundamental and technical indicators, you can also employ research tools such as trading signals, economic calendars, and report season calendars.  

Top gold brokers in the United Kingdom

You require a financial service provider to proceed with trade in financial markets such as commodity market, indices market, precious metals and several others. They also provide various analytical resources, tools and ultra-modern trading platforms to enhance your trading standards and knowledge. But, selecting the right and reliable broker is a tough task. We have made it a bit simple for you by listing some of the top brokers for investing in gold. 

1) Global TradeATF

As the name implies, TradeATF is a global broker rendering its services across the world’s major countries. The broker is well-regulated, working under the guidelines of the International Financial Services Commission. It is a trading name of famous Bayline Global World Limited. The minimum deposit required to open an account with the broker is $250. The broker allows leverage of 1:125 on metal trading, and spreads with the firm are floating. The features of the Global TradeATF gold account includes:

  1. Maximum leverage on trade: 1:400 or 1:500
  2. Minimum spread around 0.05 pip
  3. Provides hedging of funds
  4. More than 750 assets 
  5. Research tool such as trading signals
  6. Swap discount available 25% 
  7. Dedicated customer support 24/5
  8. Zero commission on trading
  9. No deposit limit for funds 
  10. Total base currencies available includes USD/JPY, EUR/USD, GBP/USD, USD/CAD, AUD/USD, USD/CHF, EUR/GBP, NZD/USD.

2) HFTrading 

HFTrading is a legit financial service provider authorised by top financial authorities, the Australian Securities and Investments Commission (License number 414198) and the New Zealand Financial Markets Authority (license number FSP197465). Moreover, it is a trading brand of the New Zealand-based firm CTRL Investment Limited. The broker allows you to speculate over various financial assets, including commodities, indices, stocks, futures, gold, silver etc. 

The trading platforms available with the firms are advanced MetaTrader 4 and web traders. These platforms provide trading on multiple time frames, 30 analytical tools and regular news alerts about market events and price shifts. Also, the broker offers various research tools to determine the entry and exit precisely. These include an economic calendar, report season calendar, trading signal and latest news. The features of the gold account of HFTrading are: 

  1. More than 350 financial assets
  2. Minim spread around 1.8 Pip.
  3. The maximum leverage offered on trade 1:400 
  4. Swap discount available around 25% 
  5. Account currency: United States Dollar
  6. Execution model: NDD
  7. Stop-out/ margin call: 30%/ 100%
  8. Average execution speed of 0.05 
  9. No limit on deposits 
  10. Dedicated customer support service 24/5
  11. Total base currencies available includes USD/JPY, EUR/USD, GBP/USD, USD/CAD, AUD/USD, USD/CHF, EUR/GBP, NZD/USD.

How to open a gold trading account with the broker? 

The process of opening an online trading account is instant and straightforward. You need to send your five valuable minutes. These are as follows:

  • Visit the website of the broker and register. It will require your name, country, email id and phone number. 
  • Upload the required documents, which includes address proof (bills), identity proof (national id card or passport), banking and financial statement. 
  • Select the account types and metal you wish to trade and deposit the amount for the same. 
  • Start trading 

Note: 

  • Banking and financial statements should not be older than six months.
  • Keep the documents ready beforehand. It will reduce the time required to open a trading account. 
  • Check the URL of the website properly. Do not fall into any fraud or trap due to URLs. 

Advantages and disadvantages of gold trading 

Advantages of gold trading 

Some of the significant benefits of gold trading are:

  1. Its ability to hedge against inflation. When we compare gold with other traditional currencies or assets, we will notice that it maintains its purchasing power at the time of inflation. 
  2. Gold is a stable investment tool. It stands firmly in times of global instability. It also works when other trading assets fail or lose their value. 
  3. Also, there is a wide range of gold trading options, including gold futures, gold ETFs, gold CFDs, bonds, and several others. 

Disadvantages of gold trading 

Some of the disadvantages of gold trading are:

  1. Gold is an extremely volatile precious metal. This market has enormous potential to generate hefty returns, but at the same time, it also carries several severe risks of losing capital. 
  2. The price and the exchange rate of gold are not stable. One cannot predict its price in the next week or few days by looking at the currency trend. 
  3. Gold trading also involves the cost of trading. For instance, trading gold ETFs comes along with high brokerage fees.
  4. Last but not least, gold trading involves sizable liquidation spreads.

The Bottom Line 

Gold trading is profitable, as well as extremely risky. You cannot avoid losses in the financial market but can make efforts to mitigate them. The very first thing is practising trade though a virtual or demo trading account. Through this account, you can check the potential of your trading strategy and risk management technique before starting real-world trading. If you find that your chosen trading strategy is inefficient, then you can change it beforehand. 

Frequently asked questions 

1) What are gold futures? 

In gold futures, both the parties (buyer and seller) decide to buy or sell the commodity at a fixed price on a particular future date. Leveraged trading is allowed in gold futures as traders can trade them on exchange trading platforms. This margin is undoubtedly more than investing in gold (physical). 

2) How do I start investing in gold?

To start investing in gold, you need an online trading account with a reliable financial service provider. 

3) Can I make money by investing in gold? 

You can earn a massive amount by investing in gold. However, the need is a robust trading strategy, in-depth knowledge about gold trading and efficient risk management techniques. 

Trading View

Top Brokers