Gold Trading Beginner's Guide Part 2 - Learn Forex - FX Leaders FX Leaders

Gold Trading Signals – A Beginner’s Guide, Part 2

Back to part 1 – Gold Signals a beginners guide.

How to trade gold?

Gold can be traded in myriad ways, from gold coins all the way to gold mining stocks. The simplest way that many people invest in gold is to buy physical bullion. However, this approach isn’t ideal for those looking to make a quick profit on gold, as a physical buyer is needed if you want to offload your stash. Additionally, physical gold is also generally marked up due to the manufacturing, storage, and shipping of the yellow metal, and selling usually incurs more costs than just closing an electronic gold contract.

These electronic gold contracts are known as contracts for differences (CFDs). They allow you to trade on the price of gold without ever actually owning physical gold. These contracts are often leveraged, which allows traders to gain more profit than actually owning physical gold (of course, the downside risk is also greater).

Pip Value of Gold

In the forex world, the pip is an abbreviation of point in percentage. The minimum change in the price of a currency pair is known as a pip. It’s the fourth number following a decimal in most price quotes. A 1 pip change is a price movement of 0.0001.

Most brokers work on a $0.01 pip cost on gold. Assuming no leverage is used, that means that for every pip the price moves, you will either gain or lose $0.01. But how many pips is a move of $1 in the gold trading price? 

Well, if you bought one ounce of gold, it means you will obviously make $1 if the gold price goes up by $1. If one pip is $0.01, then one dollar is 100 pips. Very simple.

How To Use Gold Signals

Trading the markets can be really tricky, especially if you’re new to the game. The great thing about using our forex, indices, and commodity signals, is that you don’t need to do the laborious technical and fundamental analysis yourself.

We have a team of exceptional traders that constantly scan the markets for excellent trading opportunities. These traders are seasoned analysts with years of trading experience and have a deep knowledge of how the gold market works and what moves it.

If you’d like to have our fantastic team of traders guiding your trades to mind-blowing profitability, simply follow these steps:

Click on this link to go to our forex signals terminal. This is what the terminal looks like:

FX Leaders' forex signals dashboard

The terminal is divided into short-term and long-term signals

In the terminal, you’ll see all the necessary information you need to trade, like the particular instrument (currency pair, equity index, or commodity), action (Buy or Sell), status (Get Ready, Active, or Closed), and the stop loss and take profit levels. Additional information is displayed in the comments column.

When the status flashes “Active” the signal is ready to be copied to your personal trading account.

You can open the trade at the market price with a pre-set stop loss and take profit according to the parameters of the signal. It’s always safer to set your stop loss as you open the trade. This is a preventative measure that protects you against sharp market moves before you can set your stop loss order.

Once the trade is open, it will generally be closed automatically when the price reaches either the stop loss or the take profit.

In certain circumstances, our analysts may close the position manually due to something they’ve spotted, in which case the following comment will appear in the comments box: “The signal was closed manually at x price”.

When the status flashes “Get Ready,” our analysts are looking at a particular trade setup and are about to open a live signal.

This message gives you time to open up that particular instrument’s chart and order ticket while the analysts are going through their final checks.

If you’d like to be notified as soon as a signal appears in the signal terminal, you can subscribe to our premium signals service. This ensures that you never miss a winning trade. 

Notifications are sent to your mobile phone and via email, and you’ll also receive an audio alert on your computer to warn you of the trading opportunity ahead.

Gold signal

Trading Our Gold Signals Online is Cheap and Easy.

The screenshot above of our signal terminal displays an example of one of our gold trading signals. You can see the entry price, stop loss and take profit – everything you need for a profitable trade. As you can see, this was active at the time, meaning it was ready to be entered. 

This is just a brief guide on how to utilize our free and premium gold trading signals. For more details and information about our signal service program, please follow this link: How to Use Our Forex Signals.

Different Ways to Trade Gold

When it comes to trading gold electronically, there are a few different ways to do it, such as trading gold ETFs (exchange-traded funds), futures contracts on gold, gold options, and of course, gold CFDs (contracts for difference). 

There are even gold mining stocks and gold mutual funds that offer an alternative way to become exposed to gold. Retail traders mostly trade gold CFDs, so let’s briefly examine this topic.

Trading Gold CFDs / Gold Trading Signals

Trading a contract for difference (CFD) on gold is not complicated. By buying or selling a gold CFD in response to one of our gold trading signals, you participate in the price movement of this precious metal without actually owning it physically. It’s traded exactly like a currency pair. The only difference is that you’re buying or selling gold against the U.S. dollar. 

The symbol for the gold CFD is usually XAU/USD. XAU is the globally recognized symbol for gold, and USD is the U.S. dollar component. When you believe the gold price will fall, you can sell this “pair”, and when you think the gold price will rise, you can buy it.

We offer the best gold trading signals, which makes trading this sometimes tricky financial instrument a breeze.

Contract size

The smallest contract size you can trade on our standard forex trading platforms is normally one ounce. As of July 2022, the price of one troy ounce of gold is around $1700, falling from 2020 highs of just over $2000.

This sounds like a lot of money, but luckily you don’t need to put down the full amount to open one of our gold trading signals. In many cases, gold traders need less than ten dollars’ “margin” to buy or sell one ounce of gold. 

This will vary depending on the amount of leverage your broker offers, with increased leverage reducing the amount needed to open a position and vice versa. One of our preferred trading brokers requires only $2.50 to open a one-ounce gold position.

Example Profit and Loss Calculation

As I just mentioned, a hundred pip move in the gold price will make a $1 difference in your gold trading account if you bought one ounce of gold. To calculate your potential profit on gold trading, simply multiply your position size by the distance to your target.

For example, if you bought 26 ounces of gold at $1255, and you have your take profit set at $1256.23, it means you’re targeting a gain of 123 pips. 

Multiply this by the number of ounces you bought: 123 pips X 26 ounces = 3198 pips. 

To convert this number to dollars, just multiply it by the pip cost of 0.01. So, 3198 pips X $0.01 pip cost = $31.98. This is your profit on 26 ounces of gold if you hit a profit target of 123 pips ($1.23).

It’s important to note that there’s a big difference between a gold trading pip and a pip in forex terms. The pip cost on the EUR/USD is $0.10. This means it is ten times the value of a pip when trading a gold signal. Therefore, to make it easier to compare with the forex market, you can compare a 1000 pip move in gold to a 100 pip move in the EUR/USD.

This is important because it will make the transition when trading gold easier. For example, you might be accustomed to swing trading the forex market with a stop loss of, let’s say, 50 pips. 

If you set up a swing trade on gold, you could easily make the mistake of using a 50 pip stop loss because you’re used to doing it this way with forex.

If you make a mental note of multiplying your usual forex stop loss by 10, you won’t make the mistake of setting a stop loss on gold that is tighter than you actually intended it to be. Thankfully, you won’t make any of these mistakes if you follow our incredible gold trading signals.

Gold and Equities

Gold is generally believed to be inversely correlated with indices, and this makes sense. Gold has a fixed supply (although it does grow as new deposits are found), which makes it a safe store of value in uncertain times, particularly during the inflation-laden economy we see in 2022.

As coronavirus took hold of the world’s economies, gold soared over $500 from a low of around $1500 in March 2020 to just over $2000 in August 2020, acting as a hedge against a lack of confidence during these volatile times. 

Particularly as more money was printed by central banks and fed into the stock markets, wary investors bought up gold. Low interest rates made keeping cash too risky, especially with soaring inflation eating away at its value, so investors flocked to gold instruments. Gold ETFs, for example, saw a historic $48 billion inflow.

As vaccination programs were rolled out worldwide and the world prepared to reopen, gold fell while the stock market climbed – a natural correction from highs never seen before, falling around $300 to where we are today. However, as recession fears put stock markets on the back foot, we may see gold soaring to new highs once again.

It’s worth noting that buying gold at the peak of uncertainty is often a bad idea. Take the crash of March 2020 as an example. As equities fell, investors were much more interested in getting their cash out of positions than buying gold (or any other financial instrument for that matter). As a result, gold actually fell sharply from around $1700 to a low of $1450. However, this was only a 14.7% decrease, much less than the S&P 500’s 35.7% drop.

In this scenario, it would’ve been much wiser to hold on to your cash and wait for a new bull market to emerge, or use our analyst’s signals to help get a gauge of the market.

Major Economic Events Which Impact Gold Trading

There are many economic factors that influence gold’s price, including interest rates, inflation, economic indicators, gold supply and demand, the value of the U.S. dollar, and large gold transactions by central banks.

Let’s briefly have a look at each:

Interest Rates

When interest rates are low, it becomes unattractive to hold cash in a savings account. Central banks lower interest rates to stimulate spending, which in turn forces investors to take their money out of the bank and look for alternatives to keep up with inflation. These low interest rates generally coincide with an economic downturn, which is another factor that boosts gold.

Inflation

As inflation devalues cash, an asset with a fixed supply like gold becomes a viable alternative to allow money to retain its value as the price of gold grows. Particularly when inflation is sky-high, like at the moment in mid-2022, gold can outpace inflation and act as a hedge.

Economic Indicators

Economic indicators are the broad category for data that comes out about the economy, like GDP figures or Non-Farm Payroll data. As we now know, when investors are wary of the economy, gold gains. These data releases often cause short-term spikes in gold, as investors expect equities to fall off the back of poor data. The opposite is also usually true.

Gold Supply and Demand

Of course, gold’s price all comes down to supply and demand. When there is a new deposit found, the price of gold might fall. Conversely, when investors are looking to flock to safety, demand increase, and the price of gold rises.

Value of the U.S. Dollar

As gold is commonly traded against the dollar, the two are generally inversely linked. When the dollar loses value, gold generally rises and vice versa. There’s also the safe-have aspect of both instruments: the U.S. Dollar is the world’s reserve currency, and other countries might buy up dollars during times of economic uncertainty in their own countries. This would have a negative impact on gold if purchases of gold don’t keep up.

Gold Transactions By Central Banks

When gold is bought by a central bank (the Swiss National Bank backs a portion of the Swiss Franc with gold, for instance), investors want to piggyback on the purchase: after all, if a major economy is deciding to get involved, why shouldn’t we? 

On top of this, big purchases of gold remove supply from the existing pool, which also increases the price. Lastly, depending on the scenario, gold prices may rise as central banks struggle to find liquidity, pushing prices up and filling orders.

Get Involved In Gold

Our team has a strong understanding of all of these factors, with plenty of experience in analyzing economic data and knowing where gold is headed next.

If this sounds like something that could be invaluable to your trading arsenal, why not try our trading signals? They could be just the breakthrough you need to double or triple your trading account.

That’s not all, though. We also have an amazing library of forex trading strategies related to forex trading, broker recommendations, and of course, our forex trading course.

What are you waiting for? Join the FX Leaders community now!

About the author

Skerdian Meta // Lead Analyst
Skerdian Meta Lead Analyst. Skerdian is a professional Forex trader and a market analyst. He has been actively engaged in market analysis for the past 11 years. Before becoming our head analyst, Skerdian served as a trader and market analyst in Saxo Bank's local branch, Aksioner. Skerdian specialized in experimenting with developing models and hands-on trading. Skerdian has a masters degree in finance and investment.