Gold is a safe-haven investment and a safety net during recessions or market declines. However, history shows that gold prices have not always been on an upward trajectory. Gold trading has become popular as investors from all walks of life use it as a hedge against market declines.
Here are some tips for trading gold to help increase your profits.
Mindset: Are you trading or investing?
Before dabbling in gold trading, we must know what we are aiming for. This is important because the strategies, icon cycles and platforms we will use will vary greatly.
Investing in gold means that we buy gold for long-term storage. We recommend that investors buy physical gold or gold certificates instead of opening positions on the trading platform. Because in the long run, the holding fee will be a huge drain on profits. One downside is that physical gold can be expensive to store when you buy large quantities of it.
One of the benefits of trading gold on the Fullerton Markets platform is leverage. While leverage is a double-edged sword, when used properly it can allow traders to use very little capital in exchange for increased profits.
Four factors affecting the trend of gold price
Like any other commodity, there are several factors that affect the price of gold:
Central bank monetary policy
We realize that the price of gold is closely related to the U.S. dollar, so the value of the U.S. dollar will inevitably have an impact on the direction of gold. So, traders should note that any movement related to the USD is very capable of moving markets, especially alongside policy changes/developments.
Supply and demand
Demand and supply affect the trading of every commodity, and gold is no exception, especially since it is viewed as haven and scarce natural resources.
Many investors look for assets known as risk assets, one of which is gold. Because the supply of gold natural resources is limited, if the global market conditions are not good, the demand for gold will increase
Geopolitical events
Geopolitical conditions between countries, especially country with huge gold reserves. The relevant geopolitical conditions will also have an impact on the flow of gold. Tensions or unfavorable conditions between these countries will cause the market to turn to risky assets. In this case, safe-haven assets would be the first choice.
Natural disaster
Natural disasters could also play a role in boosting gold demand, as these large-scale events often influence government policy. Especially in countries hit by natural disasters, investors may exercise caution and reduce trust in the economy, which may lead to investing money in gold.
Increase profitability based on correlation
If Fed policy does not support growth against the dollar, then be prepared to buy gold. If sentiment towards the dollar is positive due to central bank policy, then gold can be sold.
If the conflict between major countries continues to escalate, we recommend buying gold. In the meantime, we recommend shorting gold (i.e. selling gold) when tensions recede.
Risk sentiment refers to the feelings and behavior of financial market participants, mainly traders and investors. In layman’s terms, we can think of it as the mood of the entire financial market.
There are two sides to risk sentiment: risk-on or risk-off. During the risk-on period, markets take on more risk by selling safe-haven assets such as gold and bonds, and move into riskier assets such as stocks. On the other hand, during the risk-off period, the market starts to sell riskier assets and seek safe havens.
Once we can determine the risk sentiment in the market, we can increase our chances of moving in the right direction when buying or selling gold.
