Trading Gold: Strategies to Keep in Mind

The glitter of gold has attracted a lot of investment. The reason gold is a safe harbour for traders is that it offers very high liquidity unlike any other instrument of investment. Gold market holds immense opportunities for traders as they can benefit irrespective of the market being bullish or bearish. The reason why gold is a safe harbour for traders is that, it has a unique position in the world economy and even in the political systems.

People love to hoard gold. And owning a collection of gold instils a feeling of security, as during difficult time gold can be useful. Gold can be used as currency at emergencies like war, when a country’s own currency has lost its value.

While it is a pleasure to own gold, you can invest in gold without owning it. You can take advantage of incredible leverage by speculating in gold through equities, futures and options markets, if you could handle the measured risk. In order to earn from fluctuations in the gold prices, a trader must learn more about the characteristics of market when they are trading metals online. This will help them safeguard against the pitfalls that may cause losses.

It is not hard to trade gold, if traders follow some strategies. Here are some tips that are not only beneficial for a professional trader, but also for a newbie:

Understanding the factors that affect gold prices

When you decide to trade gold, you must know what factors affect the prices of gold. Like any other instrument of trading, there are many aspects that affect the prices. Gold reacts to very less number of price catalysts. The forces that impact the sentiment, trend and volume of gold in the market, are - inflation and deflation, greed and fear, and supply and demand.

As a market player, you must always remember to focus on all the forces. If you focus on one polarity, you might have to face higher risk. Gold prices are generally affected by the combination of the above mentioned forces. While it may seem that the market is being triggered by one factor, there can be an underlying factor that might be the driving force behind the price changes.

Understanding the market crowd

Gold has a value in the market. Thus, it attracts a lot of crowd that have interest in metal. Often it is seen that the interests are opposites of each other. This creates volatility in the market. There might be collectors, known as gold bugs, who keep collecting gold. They are considered as long term players of the gold market. They are not affected by the trends and rarely change their moves during downtrend. Almost the entire population of gold bugs consists of retail participants.

Gold bugs add to the liquidity of the market as they offer a non-stop supply of buying interest. They also provide the efficient entry for those who trade short trades. Gold also attracts hedging activities by financial institutions that buy and sell gold as a part of their bilateral strategy.

Gold is a very profitable instrument that can fetch huge profits to traders who are investing in the market. The traders, however, must keep a keen eye on market and follow some good strategies.