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Gold Trading Guide: How to Trade Gold

Date Modified: 05/05/2024

TL;DR

  • Gold is among the most popular commodities to trade.
  • Gold trading activity is usually higher between 8:00 AM and 12:00 PM EST and around market-moving news.
  • There are different ways you can trade Gold, such as trading Gold CFDs, trading shares of companies exploring Gold mines, trading Gold options, and trading Gold ETFs or ETFs focusing on mining companies.
  • Depending on your trading strategy, you can use different trading styles to trade Gold, mostly Gold day trading and Gold swing trading.

For centuries, Gold (XAU) has been valued as a symbol of wealth and a store of value. More than that, it once formed the backbone of global currencies, back when the Gold standard was still used. Even nowadays, the yellow metal retains its value as a store of wealth and continues to play a vital role in the worldwide financial system.

While its price fluctuations can offer various trading opportunities, traders should know how to trade Gold before getting started with Gold.

Accordingly, this guide aims to provide information about Gold trading, exploring the factors that influence its value, the popular ways to trade Gold online and the various financial products available to invest in Gold.

An illustration of gold bars

What Is Gold Trading?

Gold is a precious metal belonging to the family of hard commodities. It is also one of the most traded commodities. While retail traders primarily access Gold through over-the-counter (OTC) markets, there are a range of major trading hubs.

London, for example, is known for its global precious metals OTC market with the London Bullion Market Association (LBMA), while New York offers Gold futures and options trading on major exchanges, like the New York Commodities Exchange (COMEX) from the CME Group and the International Continental Exchange (ICE).

These Gold markets facilitate transactions between diverse market participants, including institutional and professional investors like central banks, banks, brokers, and hedge funds, as well as commercial users, like jewellers, and individual investors seeking to capitalise on Gold price movements.

In the financial markets, trading Gold refers to the act of buying and selling Gold in the hope of making a profit, either with physical Gold or through different financial derivatives based on Gold that do not grant you the ownership of the underlying commodity, such as Contracts For Differences or CFDs on Gold.

With such financial products, you may try to profit from both Gold’s bull and bear market.

If you believe that Gold prices are going up, you could open a long position where you buy Gold in the expectation of selling it later at a higher price. Conversely, if you expect Gold prices to go down, you could open a short position where you short-sell Gold in the hope of buying it back later at a lower price.

An illustration of gold shorting

If your predictions are correct, and your timing is right, the outcome of your trade on Gold is likely to be positive and turn into a profit. However, if your scenario doesn’t play out and your timing is incorrect, then the outcome of your trade is likely to be negative and turn into a loss.

Factors that Can Affect Gold Prices

To better understand how to trade Gold, you should start by being aware of the factors influencing Gold prices. Here is a non-exhaustive list of what can move the value of the yellow metal:

  • Gold demand from diverse sectors, including central banks’ reserves and purchases, jewellery, and industrial applications in electronics and medical devices, as well as trading.
  • Gold supply from mine production and Gold recycling which are also influenced by environmental regulations and geopolitical factors.
  • Measures of Inflation, such as the CPI and the PCE.
  • American monetary policy, especially interest rates.
  • Hawkish or dovish tone from FOMC members.
  • Value of the American Dollar (USD).
  • Stage of the economic cycle in the United States, like economic recession, recovery or boom.
  • Global economic climate.
  • Geopolitical tensions, such as international trade disputes, armed conflicts, elections, political unrest, territorial disputes, and diplomatic breakdowns.
  • Investor behaviour, such as market sentiment.

Understanding these drivers may help you make more informed decisions about Gold trading, but you should also remember that Gold markets are inherently volatile and past performance offers no guarantee of future results.

Different Ways to Trade the XAUUSD

There are two main ways to trade Gold: physically owning the metal such as Gold bars and Gold coins or through paper-based instruments on Gold.

Buying physical Gold provides tangible possession but comes with storage and security challenges and costs, while paper Gold allows you to trade financial products based on the evolution of Gold prices without holding any physical Gold.

Gold ETFs (Exchange-Traded Funds), Gold Futures Contracts, Gold Options Contracts and Gold CFDs (Contracts For Difference) are the most well-known ways to trade Gold through an online trading platform. It is also possible to trade this commodity with other types of CFDs, such as CFDs on Gold ETFs* such as GLD Gold (GLD)* and CFDs on Gold Options*.

Beyond direct Gold exposure, trading companies* being involved in the Gold industry can be an indirect way to be exposed to the Gold market. This could include miners, refiners, or even jewellers who are tied to Gold prices. Agnico-Eagle Mines (AEM), Anglo American (AAL-L), Barrick Gold (Gold), Kinross Gold Corporation (KGC), and Newmont (NEM), are examples of well-known Gold-related stocks engaged in the exploration of Gold and other related activities.

*Availability based on regulator

Gold Market Analysis: How to Analyse Gold Prices

Technical analysis for Gold trading: Technical analysis of Gold focuses on historical and current Gold price data and volume to identify trends and patterns to predict potential future movements through a variety of tools, including trendlines, channels, support and resistance levels, technical indicators, and chart patterns.

Fundamental analysis for Gold trading: Fundamental analysis of Gold examines broader economic, social and political factors that can influence the value of Gold, such as interest rates, inflation, growth, and geopolitical events, among others. These factors can have an impact on the difference between Gold’s intrinsic value and its market value, which can create a buying or a selling Gold trading opportunity.

How to Trade Gold with Plus500 in 7 Steps

Here are the steps to follow to get started with Gold trading with Plus500:

  1. Learn how to trade Gold and what makes Gold move.
  2. Open your trading account on Plus500.
  3. Use your preferred payment options to deposit funds.
  4. Go to the trading platform and select Gold.
  5. Decide whether to buy Gold (be long on Gold) or to sell Gold (be short on Gold).
  6. Execute your Gold trade (XAU) by clicking on ’Buy’ or ’Sell’ after confirming your order details like size, stop-loss, and take-profit.
  7. Monitor your position.

Find more details on how to trade Gold on the Plus500 trading platform in the video ’How to Trade With Plus500’.

Advantages and Drawbacks of Trading Gold

Here are some advantages of Trading Gold and some reasons why Gold is popular amongst commodity traders:

  • Gold is often considered a way to fight inflation, often called an inflation hedge.
  • Many traders consider Gold as a safe-haven asset and a way to preserve wealth.
  • The precious metal can act as a diversification tool in your overall trading strategy.
  • Depending on the US monetary policy trajectory, Gold could become more financially interesting than non-interest-bearing assets like bonds.
  • It is possible to diversify your Gold trading experience with a variety of financial instruments, such as CFDs, options, futures, and ETFs on Gold.
  • You can also use different trading styles like day trading, swing trading, and position trading, that cater to a wide range of trader profiles.
  • The Gold market where financial products are traded is rather liquid, which means that it is relatively easy for you to buy and sell your positions on Gold without affecting the price significantly.

While there are some advantages to trading this commodity, you should also take into consideration the following drawbacks and risks before getting started:

  • Gold can be volatile.
  • There’s no yield, nor dividends, unlike other assets like stocks (opportunity cost).
  • Gold trading with CFDs comes with margin trading and leverage risk.

Popular Gold Trading Strategies

When learning how to trade the XAU/USD, you’ll realise that you have a few popular Gold trading strategies available depending on your risk profile, your financial objectives, and your time horizon.

If you’re an active trader with a certain risk appetite that aims at taking profit from short-term intraday Gold price movements, then you might want to consider Gold day trading. Day trading is a strategy that focuses on opening and closing several positions within the same trading day to accumulate positions from relatively small and quick market fluctuations.

Because they’re exploiting intra-day volatility, day traders often have to stay up-to-date with the latest news. It’s also important for them to be aware of significant upcoming releases that can potentially increase volatility. For that, they can use different tools like the economic calendar and reliable news and market insights sources.

If your goal is rather to take advantage of larger price movements, over several days or sometimes weeks, you might want to look at Gold swing trading, as it leverages the price swings within a trend through strategies like range trading, arbitrage, chart patterns and channel trading.

If you’re not available for short-term trading and you’d prefer to opt for a less time-intensive commodity trading strategy, Gold position trading might be a better fit, as it aims at taking advantage of longer price movements, over several weeks or months, mostly through trend trading and breakout trading.

Gold Trading — Frequently Asked Questions (FAQs):

What is the symbol that represents Gold on online trading platforms?

If you want to trade Gold, look for the ’XAU’ symbol on trading platforms. If you’re learning how to trade Gold in dollars, you can also find it under the XAU/USD pair.

Can I trade Gold as a beginner?

Yes. However, the most important thing to do before you get into Gold trading as a beginner is to take time to learn how to trade Gold for a solid foundation, and work on your Gold trading plan so it aligns with your trader profile, objective and risk tolerance. It might also be a good idea to start trading Gold on a demo trading account before you trade with real money.

Is Gold trading risky?

Like with any type of investment, Gold trading carries a certain degree of risk, mostly due to volatility. Moreover, trading Gold with CFDs adds an additional risk due to leverage.

What is the best time to trade Gold?

Plus500 offers a way to trade Gold Spot through CFDs on the OTC markets, so you can trade it whenever you want on weekdays. There are, however, times when the trading activity on Gold is usually higher within these market hours, like when the London and New York trading sessions overlap between 8:00 AM and 12:00 PM EST and around market-moving news, like the release of the NFP report or when the Fed decides on its monetary policy for instance.

What are the most widely used indicators for Gold trading?

There are various technical indicators and trading tools you can use on the Plus500 trading platform, but the most widely used when trading Gold are Moving Averages, Relative Strength Index (RSI), Parabolic SAR, and Fibonacci Retracements.

How can I develop a trading plan to potentially profit from Gold’s price movements?

First, you should learn what Gold is and how to trade Gold to better understand the underlying dynamics of the market and how you can take advantage of them. Then, you should decide how to analyse the Gold market to make your trading decisions (technical analysis vs fundamental analysis). Finally, you’ll have to decide which setups to follow in order to enter and exit Gold trading positions, and which money and risk management rules to follow. However, always keep in mind that trading Gold can also incur losses.

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