While many folks choose to own the metal outright, speculating through the futures, equity and options markets offers incredible leverage with measured risk. Catching Resistance off of the Trend-Line. In addition, not all investment vehicles are created equally, with some gold venues more likely to produce consistent results while others frustrate most attempts to profit.
While broad-based experience assists bottom line results, seasoned professionals will benefit by incorporating four strategic steps into their daily routines. Meanwhile, novices should tread lightly, experimenting until the intricacies of these complex markets become second-hand. As one of the oldest currencies on the planet, gold has embedded itself deeply into the psyche of the financial world.
Each of these forces splits down the middle in a polarity that impacts sentiment, volume and trend intensity:. Market players face elevated risk when they trade gold in reaction to one polarity when another polarity is controlling price action. For example, a selloff hits world financial markets , and gold takes off in a strong rally.
Many traders assume that fear is moving the yellow metal and jump in, believing the emotional crowd will blindly carry price higher. However, inflation fears may have triggered the decline, attracting a more technical crowd that will sell the rally aggressively.
Combinations of these forces are always in play in world markets, establishing long-term themes that track equally long uptrends and downtrends. However, this quantitative easing encouraged deflation , setting up the gold market and other commodity groups for a major reversal.
Gold finally topped out and turned lower in after reflation was completed and central banks intensified their quantitative easing policies. VIX eased to lower levels at the same time, signaling that fear was no longer a significant market mover. Gold attracts numerous crowds with diverse and often opposing interests. Gold bugs stand at the top of the heap, collecting physical gold and allocating an outsized portion of family assets to gold equities, options and futures.
These are long-term players rarely dissuaded by downtrends that shake out less ideological players. In addition, retail participants comprise nearly the entire population of gold bugs, with few funds devoted entirely to the long side of the precious metal.
Gold bugs add enormous liquidity while keeping a floor under futures and gold stocks because they provide a continuous supply of buying interest at lower prices. They also serve the contrary purpose of providing efficient entry for short sellers , especially in emotional markets when one of the three primary forces polarizes in favor of strong buying pressure.
They are especially popular in highly conflicted markets in which public participation is lower than normal. Take time to learn the gold chart inside and out, starting with long-term history that goes back at least years. It turned lower near in the early s, in reaction to restrictive Federal Reserve monetary policy. The subsequent downtrend lasted into late s when gold entered the historic uptrend that culminated in the top.
A steady decline since that time has relinquished more than points in 4 years. This oscillation impacts the futures markets to a greater degree than it does equity markets , due to much lower average participation rates. CME offers three primary gold futures, the oz contract , a oz. While the largest contract traded close to K lots per day in , the smaller contracts were not widely traded, averaging less than lots per day for the mini and less than for the micro.
SPDR Gold Shares GLD shows the greatest participation in all types of market environments, with exceptionally tight spreads that can drop to one penny. Average daily volume stood at 5.
Large mining companies hedge aggressively against price fluctuations, lowering the impact of spot and futures prices, while operations may hold significant assets in other natural resources, including silver and iron. Trade the gold market profitably in four steps. First, learn how three polarities impact the majority of gold buying and selling decisions. Second, familiarize yourself with the diverse crowds that focus on gold trading, hedging and ownership.
Third, take time to analyze the long and short-term gold charts, with an eye on key price levels that may come into play. Finally, choose your venue for risk taking , focused on high liquidity and easy trade execution. Dictionary Term Of The Day. The ability of a company to meet its long-term financial obligations. Broker Reviews Find the best broker for your trading or investing needs See Reviews. Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education.
A celebration of the most influential advisors and their contributions to critical conversations on finance. Become a day trader. Learn What Moves Gold As one of the oldest currencies on the planet, gold has embedded itself deeply into the psyche of the financial world.
Each of these forces splits down the middle in a polarity that impacts sentiment, volume and trend intensity: Inflation and deflation Greed and fear Supply and demand Market players face elevated risk when they trade gold in reaction to one polarity when another polarity is controlling price action. Understand the Crowd Gold attracts numerous crowds with diverse and often opposing interests. The Bottom Line Trade the gold market profitably in four steps. No thanks, I prefer not making money.
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