Since ancient times, gold has been the most sought-after of all the precious metals available, due to its cultural and financial value both. Gold was an integral part of the valuation of currencies around the world during the twentieth century, and was linked to the price of the US dollar until 1970.
IG takes its inspiration from the metal itself - Investor's Gold - when it began operating in 1974, providing clients with the opportunity to trade gold with leverage rather than owning it outright. Trading gold as a form of insurance is popular, as a safe investment in times of financial turmoil.
Top Five Tips for Trading Gold
1. Plan your trading
Gold tends to elicit strong reactions among traders, which leads them to either put a lot of money into one trade, or add it to a losing trade. It is important to put your feelings aside and think of the commodity only in terms of price movement. Create a trading plan with a defined profit-to-risk ratio.
2. Analyze the market
Use charts to get an idea of how gold will behave over various time frames. Test the success of your strategies based on historical data. Look for patterns and wait for the breach before starting to trade, and trade in the mainstream. You can compare four time frames simultaneously thanks to the charts in the trading platform, and get free trading alerts to help you make your decision.
3. Know what moves gold
Although gold is not affected by political and economic events like some other markets, it does have engines that you should watch when trading. You can read more about it below.
4. Trade mining stocks
Trading contracts for the difference on the share price of gold mining companies is a serious way of indirect exposure to gold. Share prices can sometimes be a good value compared to the price of gold itself, and, of course, they are subject to economic events and company announcements. Keep your eyes on the news and basics for more information on your trades.
5. Take into consideration the traded gold products
You can use a leveraged gold product to give inflated results against the metal's price movements. For example, a doubling gold product will seek to multiply any movement that spot gold makes, and a traded reverse gold product will offer another way to sell the price of gold. You can also use ETFs to gain exposure in more than just the price of bullion, with some balances including mining stocks in the basket.
Factors that influence the price of gold
The demand for gold
The price of gold is likely to increase as the demand for it increases. The amount of gold purchased has quadrupled since 1970, thanks to its cultural and financial value across the world, and its use in several industries ranging from technology to jewelery.
Dollar
The dollar-gold relationship is complex, but usually the opposite. When the dollar depreciates, investors looking for an alternative store of value rush to gold, causing its prices to rise. The decrease in the value of the dollar also leads to an increase in the value of other currencies, and this large purchasing value in turn increases the demand for gold that was previously unaffordable.
Central bank policy
Interest rates are a factor that can influence gold price movements. Since the financial crisis in 2008, the inverse relationship between the price of gold and interest rates has been strengthened in particular. When interest rates are low or negative, this positively affects gold.
Financial pressures and political crises
Gold is used in periods of financial stress or political instability as a safe investment, as it maintains its value. Due to the great uncertainties facing the world since 2008, gold has become a popular investment tool.
Inflation
Inflation and interest rates are closely related. Continuous rise in public prices leads to higher interest rates. Gold performance becomes stronger in high inflation and recession situations, when there is a sharp rise in financial pressure.
Gold as a safe investment
Investors rely too much on gold in times of political or tax uncertainty. Unlike currency, the amount of gold cannot be expanded when desired, and unlike a stock, there is no major company that can stop operating. As a result, gold is often used as a hedge against inflation or devaluation.
However, when an investment is very popular, there is a risk of price inflation, which could lead to price spikes when it collapses. For this reason, many gold traders choose to diversify by investing in other markets.
What are the gold trading hours?
You can trade spot gold and futures contracts around the clock, except for the time between 1 and 2 AM.
What is the relationship between Forex and Gold?
Since gold is denominated in dollars, it is subject to fluctuations in the value of the latter. Gold and the dollar have an inverse relationship. When the dollar falls, gold rises. This is because gold is an ideal way to store value when the dollar is weak, and other countries can buy it because it is less expensive.