Gold Trading Benefits
Gold is known to be the most popular trading venture in bad times and in market uncertainty, as we all know currently the global markets are facing a lot of challenges like the North Korea aggressive missile testing along with the hot talks between U.S. leader and North Korean leader and on the other hand The European political instability and The BREXIT is also building pressure in global markets.
By keeping in mind the current market conditions many traders are now shifting to gold trading not only because it performs well in bad time but it has a lot of potentials to make profits.
We have shortlisted few benefits in trading in gold which is listed below-
Intrinsic value: As we all know that there is the only limited quantity of gold available in the world and gold cannot be created artificially that fact gives gold time value as with time the value of gold can only be increased. The movement of gold often ignores the global economic instability in long term due to its intrinsic value and increased demand in bad times.
High liquidity: both the spot and future gold markets are the stable global market and daily volume in the market is very high that makes this market very liquid and thus trading in Gold market is very fast due to the available liquidity.
Ability to perform in economic stress: Gold market is the only market which has the potential to perform well in global economic stress due its important position in the world’s economic and financial system
Gold Trading Basics
Every market is unique and all forms of investment have a certain amount of risk associated with it and gold market also has the risk. However, the risk in gold trading is comparatively low due to the inflation-adjusted support and resistance value which constantly moves due to the market pressure and inflation and breaking the key levels is a very rare event as mostly gold trade between those key levels.
Many traders and investors often fail in gold market due to the lack of market but that doesn’t mean that trading in the gold market isn’t very hard to learn, it is just gold trading require a unique skill set and that can be developed by studying the basic factors affecting the gold market movement.
There are few basic factors a trader should study before investing in the gold market which will help the investor minimize risk and maximize profit in the gold market.
We have shortlisted few important factors a trader or investor should study in order to become a successful gold trader:
Factors affecting the movement of gold market-
There are two important factors which affect the price movement in the gold market by controlling the supply and demand.
Important economic reports and events:
As other currencies and commodity gold also move with certain data and economic reports. The most important data which moves gold is the Inflation and deflation figures.
As we all know gold tends to appreciate in times of world market selloff and it is often observed that gold rallies in a global financial market slide and that event attracts gold bugs and they start to accumulate gold in the time of the rally. But on the other hand in those times the fear of inflation also tends to increase which attracts the technical traders who try to find the peak and then sell from that level.
These events can be understood by the example of 2009 FOMC economic stimulus after the 2008 collapse where the majority of market players traded long in gold on the back of fear sentiments created with the 2008 economic collapse. But the quantitative easing process which encouraged deflation started to impact the market in 2011 and after that point, the gold started to take correction. And the fear starts fading and technical traders started to get in action.
Players in the Gold market:
There are various types of players in the gold market and understanding the psychological difference in the players can help a gold trader to understand the price movement of the gold market.
The first type of player in gold market is Gold Bugs, gold bugs are investors not traders as they are always bullish in the market and they tend to collect physical gold even in the time of correction and that is the activity which gives the price movement of gold a spike before a fall these players are mostly the retail participants and they add a lot of liquidity in the market by giving a constant buying support to the market.
The second type of player in the gold market is the institutional player. The institutional player is large entities who trade in a big chunk of the commodity. The institutional player often plays against the Gold bugs in times of sentimental trading as the gold bugs provide them space to short sell gold at a very attractive price.
Technical patterns and Gold trading-
Broadly the movement of gold largely depends on global events and inflation but on shorter duration and intraday trade technical analysis and candlesticks patterns play a very important role as they help a trader to accurately predict the price movement by studying the chart patterns
Below are the few reliable technical tools a trader can use to predict the gold market.
Support and resistance:
Support and resistance are the backbones of technical analysis they help the analyst to identify the key levels on which the price of a particular financial counter reacts. In gold trading support and resistance, trading is very effective as the support and resistance level in gold often adjust the inflation and economic conditions which make these levels even more reliable.
However in times of extreme volatility during important global economic decisions and condition, these levels are often compromised.
Trend lines are also support and resistance level made in an angle by connecting the points where the market reacted in the past.
Trendline trading generally assumes that the market is shifting in a specific direction and that trading in that direction and that direction of price movement will continue until a break of the trend line and a trader can follow the trend line to identify the entry and exit point in the market.
In order to identify that whether the commodity in this case Gold is overbought of oversold technical indicators play a very important role.
Technical indicators help investors to make investment decisions as if the commodity is overbought it tends to drop and if it is oversold it tends to turn bullish and technical indicators such as RSI and CCI helps investors to identify it.
Trading signals and Tips:
To minimize the risk and maximize profit in gold trading an investor should invest in a reliable and well-known trading signals.
The investment advisor and research analysts who provide trading signals in gold have extensive knowledge of the gold market and they have a lot of experience in trading and that can help a trader to understand and learn the gold market more effectively by back testing the signals provided.
If you’re planning to start trading in gold market or you are a gold trader who is facing challenges in the gold market the best thing you can do is to study the above mentions factors, data and trading tools which will help you to understand gold market more effectively and invest in a reliable trading which will help you to make investment decision without going through the complex analytical process and also helps you to understand the movement of gold market more effectively which will enable you to learn and understand the gold market so that you can do your own research.