Gold Trading 2024: Which approach is better for novices?

Gold’s use as a medium of exchange dates back more than 5,000 years. Coins were first minted and forged from gold, and gold dust was also employed as a form of payment. A few nations started using gold as a temporary national currency as a result of the increase in worldwide output. Subsequently, a gold standard was implemented, which tied money to a set quantity of gold.

These days, paper fiat money and cryptocurrencies have supplanted gold as the primary means of payment following the demise of the gold standard. These days, gold is utilized as a safe-haven investment to diversify a portfolio and protect against high-risk investments. XAU is utilized in long-term investments, speculative trading, and the creation of the gold reserve. Central banks, the IMF and other institutions, commercial banks, stock exchanges, investment and exchange-traded funds, individual traders and investors, gold producing firms, and consumers of yellow metal are the main players in the gold industry trading market.

Continue reading to find out how to invest in gold markets and trade spot prices for profit.

The following topics are covered:

• Markets for Gold Futures

• Day-Trading in Gold

• The Best Strategy for Gold Trading

• Comparing Trading and Investing Methods

• How to Exchange Gold

• Conclusion

• FAQ

Markets for Gold Futures

Making money with gold trading assets can be done in a variety of ways. While gold futures contracts are appropriate for short-term investing, physical metal is typically used for long-term investments.

• Note that gold futures are contracts between buyers and sellers that are exchange-traded securities. This is an agreement to buy or sell yellow metal at the present price, which may differ from the spot price of gold. Contracts for gold futures may be delivered and settled. Deliverable futures presuppose that the metal will really be delivered within the agreed-upon time frame. Settlement entails a financial offset: if the price of Au has increased by the time the contract’s deadline passes, the buyer has gained because they purchased it at a reduced cost. The seller prevails if the spot prices for gold have dropped.

Although there are various derivatives (such as spread bets, options, and so on) where gold is the underlying asset, futures contract trading is still the most well-liked. This is the easiest-to-use, liquid instrument that can be purchased or sold prior to its expiration date.

The type of traded contracts, the intended profits, and the risk management system all influence the minimum deposit required to participate in the gold futures market. 100 ounces is the typical lot size for trading gold equities on an exchange (such as the Shanghai Gold Exchange, London Metal Exchange, or New York Mercantile Exchange). To open a minimum stake of 0.001 lots, you will therefore require approximately 2000 US dollars. 

The requirement for a cash reserve to offset the loss is not factored into this figure. Leveraged trading is an option, however stock brokers are less accommodating than Forex brokers; the average leverage on the exchange is 1:20.

E-Mini contracts, which are 0.1 of conventional quantities, provide an option. The exchange gold futures market still requires a minimum deposit of between $1,000 and $2,000 US.

Day-Trading in Gold

I will first discuss the differences between the entire lot in trading currency pairings and the full lot in trading the gold XAUUSD pair before going over the specifics of intraday gold trading. You can determine a possible daily profit based on the average size of the daily candlestick by knowing how the Forex broker determines the tick value and the tick movement.

What is one pip of gold worth?

The troy ounce’s price is the forex gold price, and it can be seen in the technical analysis charts or trading platform quotations.

31.1 grams make up one troy ounce. 100 troy ounces is one standard lot, and 0.01 lots is the minimum amount traded in forex. You may view all of these details in the contract specification. 

The following is how to locate the gold precious metal contract specification in the MT4:

• To access the Symbols, click the View menu and choose it. Click the Show button after locating the XAUUSD pair.

• To access the Market Watch, click the View menu. On the XAUUSD pair, perform a right-click and choose the Specification tab. 

How to determine the Forex gold pip price:

• Look up the contract size in the specification, which is 100.

• Define the point size of the pip. The pip will be equivalent to 0.01 in this case, unlike in currency pairs, because gold quotations on the platform include two decimal places.

• The trading volume multiplied by the pip size equals one USD (100 * 0.01). 

One USD is represented by the minimum 1 pip (point) price swing in the XAUUSD. Put another way, if you purchase one troy ounce of gold for 1800 USD, that amounts to a 0.01 lot trade volume. Additionally, a shift in price of up to 1805.35 USD indicates a 535 pip movement.

The pip cost 1/100 = 1 cent for a 0.01 lot, hence the profit will be 5.35 USD. Thus, the profit for a single entire lot will be $535 USD.

Let’s return to comparing the intraday yield of currency pairs and the XAUUSD now. 

In five-digit quotes, the pip price for the EUR/USD is 100,000 * 0.00001, or 1 USD. In a market with little volatility, the XAUUSD daily candlestick typically has a length of 1000–1500 pip. A daily EURUSD candlestick typically has a length of 800-1000 pip. Don’t overlook the spread, though, as it is more for the XAUUSD.

From this, I can infer the following conclusions: 

• When gold markets are quiet and there are no significant underlying variables at play, the XAUUSD intraday volatility is comparable to that of currency pairs.

• Because of its relatively low volatility on one-minute timescales, XAUUSD is not a good option for scalping. But gold typically has a trend that is more stable and has fewer intraday reversals.

Using a day trade strategy for gold in the H1–H4 timeframes could result in profits similar to those obtained from trading currencies. However, the XAUUSD is susceptible to fundamental market factors; its daily movement may increase in the opposite direction of your position and reach up to 2500–3000 points. 

Advice for starting XAUUSD trades:

• Trade gold in the direction of the trend, ideally at the start of the daily candlestick. If two or three candlesticks of the same colour show a directed movement in the daily chart, you can identify a trend movement in the hourly chart.

• Observe the underlying trend; do not sell off of your positions in response to minor adjustments.

• Take note of the changes in price of the respective underlying assets, platinum and silver. You may create gold trading strategies based on the positive connection by using tools like the gold silver ratio. Additionally, gold and oil quotes have a positive link whereas the USD and gold have a negative one. 

The Best Strategy for Gold Trading

Every trading strategy has a goal and a concept at its core. Setting a target should include the following details in a trading strategy for gold:

• The quantity of money that you hope to make. It would be preferable if you stated your goal profit as a percentage of the deposit. By contrasting the percentage with the underlying asset’s typical yearly return, you may determine how realistic the goal profit is.

• How much you’re willing to put in.

• The duration of the investment. Which investing strategy—a short-term one that allows you to cash out the asset quickly—do you prefer? Are you ready to give up liquidity in order to “freeze” the money for a while?

• The kind of trading approach that you favour. Your main profession will be trading gold, but do you want to start with passive investing as well?

• The strategy’s suggested level of risk. 

ETFs and mutual funds are good options for long-term investing. Your investment will be managed by a management company for a nominal commission fee, up to 0.5%. For short-term investments, trading futures contracts or CFDs in Forex will be appropriate.

Active trading tactics:

1. Scalping. Gold is rarely traded using it. The price will not have enough time in a few minutes to make a move large enough to offset the spread and produce a profit commensurate with the time invested. Trading instruments that are more profitable for scalping exist.
2. Trading on the swings. Since the corrections are shallow, trading on them is also effectively applied to XAUUSD. Trend-following tactics work well in this situation. In certain situations, you can integrate trend and swing trading techniques, though.
3. Trading inside a day. One of the most popular kinds of strategies is day trading in gold. In contrast to currency pairs, which frequently see day-to-day fluctuations, the gold sector grows gradually. On the other hand, gold exhibits more substantial daily price swings during periods of fundamental influence. Stated differently, the intraday range of the gold price fluctuations is larger than that of the currency pair movements. The price of XAUUSD fluctuates less frequently. The average volatility of precious metals and currency pairs over a period of ten weeks is shown in the screenshot below.
4. Long- and medium-term plans. If there’s a definite trend, positions can be kept for a few days. But swaps and exchange commission costs eat away at these techniques’ gains.
5. Strategies using technical indicators. These are technical analysis-based trading methods. Here, a mix of trend and volatility indicators with analysis across different timeframes works effectively. The duration of the intraday range price movement is evaluated on an hourly basis. You can open a position if the price is just starting to move and the trend is obvious. Additionally, oscillators can be added as supplementary tools.
6. Price-action tactics. They refer to trading that is done using graphic analysis and chart patterns. In contrast to foreign exchange assets, the movement of gold prices is smoother, making it easier to identify resistance and support levels on the chart. Patterns such as a triangle, flag, pennant, etc. indicate trend weariness. Trading price action patterns and indicator systems can be integrated.
7. Trading with a foundational understanding. The basic factors of the market have an impact on the XAUUSD pair. Finding assets that are positively or adversely connected is suggested when trading using fundamental analysis. For instance, investors may remove their money from gold assets and reinvest it in more lucrative ventures if the stock market is optimistic. For example, rising inflation and negative GDP estimates drive up the price of gold. You can consult the Market Sentiment indicator, which displays the majority’s forecast.
8. Trade on social media. Being an active trader involves more than just keeping an eye on the price chart and waiting for a signal. For a nominal commission fee, you can mimic the trading strategies and signals that seasoned traders provide. When it comes to trading gold, you should pick brokers who engage in trades on the XAUUSD more frequently than other assets. When you link your account to one of these traders’ trading accounts, signals are automatically replicated to yours. Further information on this can be found in the article Forex PAMM vs. Social Trading. What do investors select?

Stranger things about trading the XAUUSD:

• Important impact of underlying causes. The global economy, geopolitics, macroeconomic data, and the Fed’s monetary policies can all influence the emergence of a new trend in the gold market.

• Moderate risk as comparison to long-term currency pairings investments.

• High degree of liquidity regardless of the online gold trading instruments used. Physical gold bars are an exception, but if a trader agrees to a large margin, they can be traded rapidly. 

When to purchase gold

Gold is not confined to a certain session, in contrast to currency pairs. The European session is when EURUSD volatility is at its peak. Volumes of trading and volatility are lower during the Asian session. The trading session has no bearing on the XAUUSD trading volumes.

A seasonal dependency of the gold spot prices is demonstrated by an analysis based on statistical data going back to 1975, according to some publications. Based on the findings, March has the lowest price for Au, while January and September have the highest prices.

Thus, it appears that March is the ideal month to initiate a long trading position and purchase gold, and September is the ideal month to sell gold.

Signals from technical analysis:

• The moving averages with varying periods meeting. The fast MA indicates an uptrend if it crosses the slow one above.

• Trend signals from technical indicators, such the Alligator, ADX, and others.

• The ATR indicates an increase in volatility, while oscillators define the overbought and oversold zones.

• The Fibonacci retracement levels’ breakout at the important levels. An illustration of a Fibonacci-based Forex gold trading strategy is provided in the article What is Fibonacci Retracement?

• How can I use this indicator to trade gold online?

• The breaking out of patterns in visual charts, such triangles, flags, and flat channels. 

These are just a few instances of how to determine whether it’s best to buy gold or make short transactions. Technical analysis is generally used in the same manner as trading currency pairs when analyzing the XAUUSD market. The issue lies in selecting the appropriate indicator settings and modifying the trading strategy.

Indicators of a fundamental analysis

• Global economic contraction or expansion in the opposite direction. For instance, the pandemic that began in the first part of 2020 hampered the advancement of the economy. Stock indices declined amid predictions of a drop in corporate profits and the global GDP, while gold, on the other hand, hit a new record high. Following the discovery of the coronavirus vaccine in August, investors experienced optimism; the stock indexes recovered their losses from the previous spring, but the value of precious metals dropped by over 10%.

• Micro data in the economy. It has an immediate effect. This covers industry projections, data on changes in inflation, etc. Investors are willing to take money out of safe-haven assets like gold if the outlook is favorable. 

When gold prices are low, as they eventually should be, it’s a smart idea to purchase. Living through the drawdown phase is the important thing.

Signals from fundamental analysis don’t always function. For instance, the 2013 gold price decline turned out to be the biggest in the previous 30 years. India is one of the biggest users of gold, and its economic issues are said to be the primary cause. The Cyprus financial crisis, which highlighted the significant dangers associated with purchasing government bonds, is another factor. 

These elements prompted investors to panicily remove funds from medium- and long-term exchange-traded funds (ETF funds). This quickened the decline in gold prices. Investors favored cashing out over making investments in safe havens.

Should I purchase gold right now? Gold is worth purchasing if the XAUUSD price has dropped from its all-time highs.

How is gold purchased?

Only banks with regulatory licenses are able to sell gold in physical form. The only place to purchase certified metal with documentation attesting to its genuineness, purity, and other attributes is the bank.

Physical gold bars are available for purchase without delivery from specialist companies that ensure the security of the metal in their own depositories. But are you prepared to assume this kind of risk? Certain banks offer gold certificates or gold deposits as an additional safe method of purchasing gold.

Trading gold CFDs is the safest, lowest-risk, and most effective way to invest in the gold market. Even if you don’t actually purchase the metal, you can sell it at any time with just a few clicks. 

Now, what is the process for obtaining gold on the LiteFinance exchange? Take the subsequent actions:

1. Create a new account. On TRADE FOREX- ACCOUNT TYPES, click. The ECN account with the smallest spread is what I advise. To enter a transaction with a minimum lot of 0.01, a 50 USD minimum deposit and a 1:100 leverage are required.

2. To open your account, you have to pass verification. Without registering or verifying, you can also test it out for yourself on a demo account.

3. Select the XAUUSD pair from the Metals menu after opening the trading window.

4. Examine the price chart for gold. Among the indications to start trading are:

• When oscillators reach the oversold area, they reverse course and begin to move in the direction of the range’s midpoint.

• Charting software and trend indicator signals validate that the price is moving in the desired direction.

• Gold’s price breaks out of the level channel.

• Reversal patterns, engulfing patterns, pin bars, and other patterns emerge. 

For Example: A consolidation range is formed after a brief rally and is indicated by a horizontal channel.

The upward channel breaking indicates the beginning of the rally. If the candlesticks representing the breakout and the trend’s beginning have larger bodies than the candlestick representing the sideways trend, this will be advantageous.

The Engulfing reversal pattern, in which the body of the falling candlestick completely engulfs the body of the preceding rising candlestick, indicates the end of the uptrend. Subsequently, a Doji, or bodiless candlestick, emerges, symbolising the balance of power between buyers and sellers. The trend reversal is validated by the next red candlestick.

You can purchase gold with confidence, almost eliminating the chance of loss, but only if you have ten to fifteen years to wait. The gold price moves in both directions on daily price charts, so it makes sense to look for a strong trend or, if the spread size permits, try to profit from position reversals. Compared to long-term plans, day trading carries a higher chance of loss.

Advice on purchasing gold:

• Pay attention to the mood of the gold market trend.

• Think about the spread and swap levels. Because of swaps, medium-term trading in CFDs appears to be less profitable than intraday trading. The one exception is if a strong medium-term trend has been identified.

• Seek for a solid foundational element related to global economic opportunities. In the near run, even a force majeure could raise the price. 

When should I sell my gold?

1. A sell signal in long-term investing: the trend is progressively slowing down, and the price has broken past the previous all-time high. Positive predictions for GDP growth, a decline in inflation, and a resolution to the geopolitical issues that have driven the price of gold higher up to this point are all being made at the same time. Sell the asset when the price reverses and falls by more than 2% to 3%.

2. For short-term investments, sell signals:

• The effect of the fundamental element has run out.

• The bodies of the candlesticks are dwindling. The price is drifting sideways after rising.

• Reversal patterns have been seen.

• The oscillators are heading toward the overbought zone after crossing the middle of the 0-100 range.

• The pricing has come up against a significant barrier. 

It is advisable to concentrate on gold market and related instrument forecasts when engaging in long-term investing and trading using fundamental analysis. The Market Sentiment indicator, which shows the consensus opinion, is another option.

Using a trailing stop is one method of getting out of a deal. You enter a trade in the upswing when the price breaks out of the flat range. Close half of the position and use a trailing stop to insure the remaining portion once the minimum target profit level has been met.

The ATR volatility indicator can be used to determine the distance to the trailing stop. The trailing stop can alternatively be positioned directly below the support level or the local low.  

Do not rush to sell the asset at this time if you missed the price reversal window and your losses have already exceeded 20%. Waiting for the price to return to its highs is preferable, as the average yearly return on Au is between 5 and 15%.

Comparing Trading and Investing Methods

Trading entails frequent, active, speculative transactions in both directions. Several times a day, the trader buys and sells the XAU; long-term plans call for keeping the trade open for a few days or even weeks.

Investing is the long-term purchase of gold with the goal of protecting excess funds against inflation and, ideally, turning a profit. For at least five to ten years, investors purchase gold.

The advantages and disadvantages of trading:

The advantages and disadvantages of Investing:

Each approach offers benefits and drawbacks. What matters is your preferred approach, the risks you’re willing to take, and your desired level of profitability.

I am also able to provide an additional comparison study in the form of a table concerning multiple trading and investment options:

How to Exchange Gold

There are several approaches to begin trading gold. Exchange-traded and over-the-counter markets allow you to trade spot prices for gold.

1. Off-exchange, or over-the-counter (OTC) trading, refers to binary options and online Forex gold dealing. Gold CFDs are traded here; CFDs are bought and sold without the metal being delivered in person. Additionally, OTC gold trading involves using a bank’s gold deposit to buy real metal. The OTC London market is one instance of a place where gold can be traded in this manner.

2. A greater variety of financial instruments are available on the exchange gold market. Gold futures and options are traded. Futures can be physical commodities with actual metal delivery and settlement, with the price of the commodity being offset at the conclusion of the contract. Additionally, ETF shares that invest money entirely or partially in metal can be purchased on the stock exchange. Shares in refinery and gold mining firms, such as Barrick Gold Corporation, are available for purchase.

Let’s examine the benefits and drawbacks of each of these gold trading and investment choices in more depth.

How to Trade CFDs for Gold Futures

Contracts for differences are financial instruments that are not traded on an exchange. An investor purchases a XAUUSD contract and then resells it for a profit. Alternatively, you might sell at the going rate and profit from the differential in spot prices when the price drops. Trading CFDs is possible via Forex brokers.

Benefits of trading XAUUSD CFDs:

1. $50 to $100 will be enough for a minimum-size trade when trading gold futures, which has a comparatively cheap initial deposit compared to the exchange market.

2. small commission costs. The only costs are for the spread and swap. No repository or exchange fees. It is not necessary to have qualified investor status.

3. The state of liquidity. If you have access to the Internet, you can close the deal at any moment, from anywhere in the globe. 

For gold traders who lack substantial capital but possess fundamental forecasting abilities and are eager to engage in active trading, trading gold CFDs on Forex is among the most profitable opportunities. But it’s important to keep in mind that CFDs are complicated securities, and trading them carries a significant risk of losing money.

To trade XAUUSD CFDs, take these actions:

• Choose a broker, create an account, and undergo authentication.
• Increase your deposit by the bare minimum needed. If your broker offers penny retail investor accounts, you can start with them.
• Examine the XAUUSD trading circumstances. Examine the contract specification’s available leverage level, minimum transaction volume, and contract size.
• Examine the chart, make trades, and profit. 

Conclusion

Gold trading offers a variety of opportunities for both novice and experienced traders. For beginners, it’s crucial to understand the different market mechanisms and strategies to find the best approach. While gold futures and day trading can yield significant profits, they also come with higher risks. Investing in gold ETFs and CFDs can provide a balanced mix of safety and returns. Choosing the right broker, understanding market trends, and leveraging technical and fundamental analysis are key to success in gold trading.

FAQs

1. What is the best strategy for a novice gold trader?

• For beginners, long-term investing in gold ETFs or mutual funds is recommended. These options offer professional management and lower risk compared to day trading or futures contracts. Starting with a demo account to practice without real money is also beneficial.

2. How much capital is needed to start trading gold futures?

• Trading gold futures typically requires a minimum deposit of $1,000 to $2,000 for E-Mini contracts. However, to trade standard lots on major exchanges, a minimum of around $2,000 is required, not including additional reserves for potential losses.

3. What are the main factors influencing gold prices?

• Gold prices are influenced by various factors including global economic conditions, geopolitical events, inflation rates, and monetary policies of major economies. Additionally, market sentiment and technical indicators play significant roles in short-term price movements.

4. Is day trading gold recommended for beginners?

• Day trading gold is generally not recommended for beginners due to its complexity and the need for quick decision-making. The XAUUSD pair can exhibit significant volatility influenced by global events, making it more suitable for experienced traders.

5. How can I choose a reliable broker for gold trading?

• When selecting a broker for gold trading, consider factors such as regulatory status, trading conditions (spreads, leverage, and commissions), platform reliability, and customer support. Research and reviews can also provide insights into the broker’s reputation and service quality.