Must-Know Gold Trading Tips

Gold Has Been Known As A Good Hedge Against Inflation

Gold has been widely called a “safe-haven” asset as it is able to retain and increase in value despite times of market turbulence or inflation. Many investors turn to gold trading because of that. However, it is inevitable that there could still be risks involved. To know how you can increase gains from gold trading, here are some gold trading tips to keep in mind when trading gold.

Gold Trading Tip 1: Keeping Track Of U.S. Trading Hours Is Key

The first gold trading tip is to be aware and clear of the U.S. trading hours. Even though the gold market runs almost 24 hours, the peak activity for gold trading is mostly found during the New York trading hours. Trading gold during its peak activity hours also means high liquidity and low volatility, therefore making it a good time if you are aiming to open “safe-haven” positions. If you are choosing to execute a scalping strategy, you might prefer trading during off-peak trading hours as the extra volatility might provide you with more opportunities to take advantage of larger intra-hour price movement. However, off-peak trading hours incur additional risks arising from extra volatility of the assets.

Learn more about the trading hours for gold recommended by PU Prime.

Gold Trading Tip 2: Gold Prices Can Be Affected By A Combination Of Factors

Another gold trading tip is to also recognise that gold prices fluctuate based on a combination of factors. Understanding the factors could potentially help gold traders make more informed decisions.

Geopolitical Scenarios Can Cause Gold Prices To Rise

Geopolitical tensions tend to inflate gold prices as gold is seen as a safe haven asset and a hedge against volatility in the wider markets. When a specific currency market undergoes a lot of disturbance, gold prices tend to rise greatly as well. Hence, it will be very useful if gold traders to pay more attention to geopolitics and how they might affect the currencies while executing their own gold trading plan.

Gold Has A Negative Correlation With The US Dollar

Because gold is denominated in U.S. dollars, a weakening of the currency would mean that investors can purchase more gold for less with a foreign currency. This is especially true of overseas investors who might be holding most of their capital in a currency other than the U.S. dollar.

There Is Also Commercial And Industrial Demand For Gold

As gold is considered both a store of value and a commodity, it also has practical applications including being used for making jewellery or electronic products. Hence, spot gold prices can also be affected by its rate of production and mining and its demand from the non-financial sectors. In 2021 alone, the combined demand from jewellery and tech came in at over 63%. Hence, it will always be more helpful for gold investors to understand that gold prices are not only affected by economic situations.

Central Bank will Increase Interest Rates In Times Of Inflation

During times of inflation, it is common for traders to turn to gold the price of gold is expected to increase. However, central banks might increase interest rates, causing gold prices to drop as investors rotate out of the non-yielding asset. Therefore, it is also crucial to keep a look-out to central bank activities even at times of inflation, so as to avoid trading gold on a misidentified trend.

Other than that, it is worthwhile to pay attention to central banks’ gold purchasing activities. Central banks purchase gold to hedge risks as they anticipate currency instability. Massive buying of gold assets from banks can be an indicator that gold traders would start shifting investments to other funds that can be considered less volatile. Such movements would usually also lead to increase in gold prices in the short run, hence making trades at this time could also allow gold traders to benefit. Central banks that tend to steer towards gold-buying are usually emerging economics. 

Gold Trading Tip 3: Understanding Gold Market By Seeing A Bigger Picture

Last but no least, as it can really be confusing as there are too many factors influencing gold prices, beginner gold traders can consider looking at the correlation between gold’s price action with various other charts like Treasury bond yields and the Dollar Index. Additionally, since gold has been traded for such a long period in history, it would also be beneficial to look for long-term charts to help with identifying major price levels and patterns. Looking at the price action from different timeframes can also help gold traders confirm or set stop-loss or take profit levels and prevent closing out too early or late. 

Final Thoughts

Lastly, there are definitely plenty of things to watch out for in order to do well in gold trading. However, with the above mentioned gold trading tips, one can slowly get started with his or her trading journey and eventually, master the techniques. Try out PU Prime’s demo account and master trading gold.

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