In this video we’re going to talk about gold trading for beginners and how you can build your own gold trading strategy. But let’s start with a bit of history to better understand gold.
Gold has been traded since the dawn of civilization and there is even data about how much it cost in 30 B.C., when it was used in Roman coins. It’s revaluations even caused hyperinflation for a time!
It was also a mainstay in the British Empire, as well as the United States in the previous two centuries.
Nowadays we have online trading without people touching or even seeing actual gold but it has definitely kept an important place and role in modern times.
Everyone with online access and money to trade or invest can potentially trade gold or its derivatives. That’s why we think it’s important to help beginner investors and traders understand how and what causes gold prices to go up or down.
Let’s start with the steps for creating your gold trading plan.
First comes analysing the chart. At this stage you have to determine what the trend is and if you’re trading in a volatile period.
Day traders can use the 5 and 30 minute charts, but you should always look at the one hour and daily charts to see what the larger trend is. With this you can determine whether you want to open a buy or sell position.
The second part is determining the three different price levels for your trade. Number one here is finding the price at which you’re willing to open a position. Number 2 is the level at which you’re willing to take profits. And number three is a level to stop your losses. Always have these set in advance to manage your risk.
To help you determine these three levels you can identify the nearest support and resistance levels. You can either look at historical levels that were previously visited, or you can use various trading indicators like moving averages or Fibonacci.
These three components are part of technical analysis, something we often use on this channel to understand charts. But we also look at so-called fundamentals, the driving forces behind the change in price.
The U.S. dollar is one such force. As gold is denominated in dollars, any rise or drop in the world’s most popular currency is immediately reflected in gold.
Gold prices tend to increase when the dollar is sold. That is because, in relative terms, gold becomes more expensive. And vice versa, gold tends to decrease when the dollar is bought, because it becomes cheaper.
The fifth thing you should keep in mind when trading gold are interest rates, or “real interest rates”, to be more precise.
Gold has a correlation with them, with prices rising when interest rates go down and prices dropping when interest rates rise. Real interests rates are calculated by subtracting the inflation rate from the nominal interest rate. This way you get a percentage gain that is adjusted for inflation.
Historically, gold prices go down when the real interest rate is below 1%. So by watching the interest rates of the FED and other central banks across the world, you can find buying and selling opportunities, especially if you’re trading long-term positions.
And talking of central banks, our next tip for gold trading is also related to them. Central banks are some of the largest players on the global gold market, as they buy and sell the precious metal all the time.
When central banks start buying more gold, that usually causes its price to increase, at least in the short term. And if gold prices then form an uptrend, then that could be an opportunity worth following.
Another thing you should keep an eye on is gold production and how the stocks of gold mining companies perform.
Their work and stock prices reflect how much gold is being mined and added into the system. The remaining gold in the ground is limited and expensive to extract, but increasing demand and a rising price might provide funds for these companies to keep digging and getting more of it in the hands of investors, banks and industries.
Major events often have an impact on the price of gold and push investors to buy or sell it. Armed conflicts, elections, referendums and pandemics almost always push investors to buy or sell gold for one reason or another.
Keeping an eye on the largest events and especially those that don’t go as expected by the markets, is always beneficial for those trading gold.
Thanks for watching this video for gold trading, let us know if you have any questions in the comments and make sure to share this video with someone who might benefit from it.
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