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What you should know about trading gold
Written by: PaxForex analytics dept - Thursday, 24 September 2015 0 comments
Gold is one of the most popular assets in the world. This precious metal has proven its value over and over with its impressive track record. Trading gold can be dangerously and exciting. Exciting because you can make money beyond your wildest imagination if you know what you are doing, and dangerous because this instrument has no qualms decimating the accounts of a trader who tries to trade it without the relevant knowledge and experience.
Forex traders are paying much attention to the instrument called XAU/USD, in other words gold. At the first sight the gold trading does not differ from any currency pair trading. Gold trading strategies have a number of distinctive factors which should be considered, as they play a role in the gold movements. Even if you look at the price chart for this precious metal, you will notice that there are much less volatile fluctuations on it. Gold is moving more directly and has less noisy movements in large time frames.
Inter-market relationships can be helpful in trading gold. As such, it's important to watch the euro and the U.S. dollar index
as well as crude oil prices for clues on gold's trending action; they are important outside markets for the precious yellow metal. It is important to note that gold prices have rallied nearly every time the dollar has dropped. When gold rallies, oil usually rallies along with it.
Indicators that impact inflation such as the Consumer and Producer price indexes, interest rate announcements, and treasury auctions play a large part in determining the inflation rate, and therefore have an impact on gold prices. Macroeconomic indicators, such as the Unemployment rate and Gross Domestic Product (GDP) also shed light on the strength of an economy, and may lead investors to lean towards or away from moving money into gold.
Thus, the strategy of gold trading has no difference with any other strategy. All indicators and time intervals are the same. The only outstanding feature of this pair is that it requires more capital from the trader. Central banks of countries are largest participants on the gold market. Therefore, this factor must be taken into account as well when one constructs gold trading strategy.