Becoming a successful trader is already a pretty challenging feat to achieve, adding in the fact that you need to learn essential skills and become familiar with currencies that you’ve never traded before. A trader goes through rigorous training to enhance their discipline and experience and, if you make the right moves, becoming a trader is one of the most lucrative jobs out there.
One of the reasons why people flourish in this field is because they’ve got a knack for predicting how the trading tides will go. Experts utilise multiple types of fundamental, technical, and even sentiment factors in order to determine how one yellow metal will move in the market; Yes, the market also includes trading gold!
Considered as both currency and as a commodity, gold is widely regarded in the market in US dollars, and it is traded over the counter, as well as an exchange-traded instrument. The normal trader may not even think to consider trading gold, but it’s actually something that you should look into because of its many pros.
Gold is actually considered as a safe-haven asset which increases its value whenever the markets are looking for an alternative to currencies that are losing their value. This is because as interest rates decline all over the world, there is a demand for a type of currency that will be able to keep its value relatively consistent.
Similar to dollar rates or Euribor rates, gold possesses a forward interest rate called the Gofo rate. The Gofo rate increases its rate relative to the US dollar whenever the demand for gold rises. The trick for expert traders is that they evaluate three dimensions that will give them a well-rounded perspective on the gold market.
Gold Technical Analysis
Veteran traders employ a tried-and-tested method of analysing the long term trend in the gold market by evaluating a weekly chart. This is because gold prices trade and trend sideways, very similar to other capital market instruments. Expert traders use a lot of tools in their arsenal in order to determine whether the price will trend, or remain relatively the same.
MACD or moving average convergence divergence is an extremely useful momentum index that takes advantage of a moving average in order to create a crossover signal. That crossover signal will then let you know whenever a positive or negative momentum is accelerating. Seasoned traders that use the weekly MACD crossover on gold prices to determine if the momentum is accelerating upward.
Relative strength index or RSI is also another momentum indicator that describes whether the gold prices are accelerating, in relation to the last 14-periods. The key to making the most out of this is to take a look at the previous highs and to gauge just how far the momentum was able to accelerate in the past.
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Analysis of Gold Market Sentiment
While there are several figures you can utilise for Gold technical analysis and to guage the gold market sentiment, the leading method is by using the Commitment of Trader’s report released by the Commodity Futures Trading Commission. This report will give you the most accurate view of understanding market dynamics that will affect the gold market sentiment.
These reports will show position data that is detailed by category. The information found in these reports is given to the CFTC by clearing members and experienced brokers. While they are not obligated to report the reasons behind these, expert traders can easily make deductions about those positions.
In terms of gold futures and options, these categories include managed money, swap dealers, and any other reportable that are relevant. The swap dealers you will find include banks, along with industry-specific merchandisers. Whereas managed money contains pension funds, mutual funds, hedge funds, etc and the last of the reportable are usually retail trades.
What are the gold fundamentals?
It is indisputable that the most important gold fundamental is whether the US dollar will rise or fall. This dependency of gold on the US dollar is based on the fact that gold is priced in US dollars. Hence, when the dollar rises, gold becomes an even more expensive and attractive currency. This only means that gold prices must fall in order to accommodate the higher cost of buying it in US dollars.
On the other hand, when the dollar declines, the reverse is true. Traders are accustomed to following how the dollar performs compared to the Euro along with the yen, as these two consists most of the transactions that happen all around the world on a daily basis,
One of the most important things about gold is that it serves as a hedge against higher inflation as well. Whenever inflation is on the rise, the gold prices are able to offset increases.
In a nutshell, predicting gold prices has no cookie-cutter formula, thanks to its fluctuating nature. For gold technical analysis, You will need to utilise all available indicators in order to predict the future direction of gold prices. However, It’s not just all up to you to find the perfect combination of technicals to trade, learn more about our community and professional trading systems on a free consultation call.
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