Gold Trading with TigerWit

Gold is one of the world’s most sought-after commodities. One that has been highly prized and valued by humans for many thousands of years. Gold is a relatively scarce yellow metal that has the power to fire human imagination and send people halfway around the world in its pursuit.

Gold has long been demanded for use in jewellery, medals, trophies and statements. Gold tops the roofs of temples and shrines across Asia for example. However, gold has another role as well as being a decorative adornment for people and places, gold is seen as a store of value and form of money.

Gold is almost impossible to destroy and only a very specific mix of acids has any effect on the metal. Nor can gold be corroded in a monetary sense by the effects of inflation, which can undermine the value or spending power of so-called fiat or paper currencies. That inflation-proof characteristic of gold makes it very attractive to investors and traders alike.

Gold has a long history as form money dating back many thousands of years. However standardised gold coins were introduced in Lydia, in what is now Turkey, around 2400 years ago these coins enjoyed a fixed purity and weight and were backed or guaranteed by the monarchs of Lydia. The coins quickly became the preferred method for payments and exchange for trade across the Mediterranean and beyond, the Lydian kings had effectively invented modern money.

Today gold is traded around the world both on and off-exchange. The gold price is widely followed and is seen as one of the key indicators for the health of the financial markets.

Gold is traded and priced in what is known as troy ounces. A troy ounce is the equivalent of just over 31.10 grams of gold or other precious metals. The standard unit for gold trading is the ingot or bullion bar which contains 400 troy ounces of gold. So, with a gold price of around US$1800 an ounce a gold bar of this size is worth US$720,000.

The high value of a relatively small amount of gold (the bullion mentioned above would weigh just under 12.50 kg) is another of gold's features and one that helps create a near-continuous demand for gold trading.

These days the gold price floats freely and finds its own level in the markets. However, this has not always been the case and before the early 1970’s the gold price was pegged within a narrow range and gold trading was very restricted. The gold price was a reference value for national currencies which were themselves pegged to gold.

Known as the Bretton Woods system, these fixed valuations and rates of exchange lasted until 1972 when the USA abandoned the dollar’s peg to gold and allowed the currency to float.

The price gold could float soon after and gold trading became easier and more commonplace thereafter.
In the time since then, gold prices have fluctuated significantly as a result of gold trading and other influences. As we can see in the long-term chart of the gold price below, which goes back 50 years to the 1970s.

Gold prices peaked historically in 2011 and then sold off, however they rallied again in the wake of COVID-19 and the shutdown of much of the global economy.

Gold is priced in US dollars and gold shares a similar relationship to the US dollar as other commodities do. A strong US dollar is seen as being negative for gold prices whilst a weaker US dollar is seen as being a positive influence on gold prices. The US dollar is not the only influence on gold prices and gold traders.

Gold prices and gold trading sentiment are also influenced by supply and demand. After all gold is mined and often extracted manually and at great depth. Labour relations and the complexities of mineral extraction deep underground mean that the supply of new gold is limited and can be interrupted.

However, the supply and demand dynamics of gold are different from those of other metals and commodities many of which are consumables.

As gold does not corrode, or participate in chemical reactions, or even decay over time, most of the gold that has ever been extracted in human history is still in circulation today.

Gold is used in some industrial applications in, for example, high-end electronics and medical devices but the principal demand for gold is as a store of value or form of money. And the demand for that is led by the world’s central banks who use and hold gold as part of their reserves alongside foreign currencies. The world's central banks hold many tonnes of gold in the form of gold bullion often in their own vaults or in a depository such as the vaults of the Federal Reserve Bank of New York or New York Fed as it’s more commonly referred to.

Gold prices have recently become something of a barometer for overall market sentiment.

For example, if spot gold and gold futures prices are rising and doing so at a time when the prices of equities and emerging market currencies are falling then it’s quite likely that markets are in a Risk-Off mood and money is moving into safe havens such as gold.

Alternatively, if we see gold prices falling, as equities and Emerging Market currencies rise in value then the market is most likely in a Risk-On mood under which money flows out of safe-haven assets such as gold and into riskier assets.

Gold trading is centred around the London and New York markets. London is home to the spot gold market and the LBMA or London Bullion Markets Association and its daily price fixings. Whilst New York is the home of gold futures trading on the COMEX exchange which is now part of the CME.

Gold futures contracts are traded over 100 troy ounces of gold or a quarter of the weight of a standard bar of gold bullion. These exchange-traded contracts are deliverable that is the trading counterparties have to make or take delivery of gold bullion at the end of the contract’s lifetime.

TigerWit offers its customers the opportunity to get involved in gold trading without the need to worry about deliveries of bullion or contract expiries. Instead retail clients can trade gold using cash settled CFDs or Contracts for Differences. These contracts on gold have no expiry dates and are settled instantly once the contract is closed. So, if you have made money trading gold CFDs and you close your position you will receive a credit on your trading account, equal to the profit on your trade. And of course, if you lose money trading gold with CFDs then your account will be debited with the value of that loss.

Traders can take short or long-term positions, or views, on gold using CFDs, trading gold intraday or over several days or weeks, if that is their time horizon.

Note though that trading positions held open for more than one business day will incur rollover or swap charges, and those trading gold over a time frame longer than a day will need to factor these charges into their calculations.

To start trading gold as a retail client you simply need to apply for and open an account with TigerWit, download and log into our trading App, fund your account and you are ready to go.

However, before you start trading gold in the live markets you may wish to consider some gold trading strategies or create one of your own.

One of the most obvious gold trading strategies is to simply follow what the US dollar is doing and then apply that knowledge to your gold trading. So, for example if we see the US dollar trading up against other currencies, then that stronger US dollar could depress gold prices. Conversely, if we see other FX majors trading higher against the dollar then that could well mean that gold prices will rise.

We can gauge the way the dollar is trading by looking at all of the FX majors. However, we may get a better read on trading sentiment for gold if we follow the so-called ‘safe haven’ FX rates such as USDJPY dollar-yen and USDCHF or dollar Swiss franc. Each of which can often move in line with gold. If the yen and Swiss franc are strengthening that can be a bullish influence on gold prices as it suggests a Risk-Off market mood and vice versa.

Another popular gold trading strategy is to look at gold and gold prices in relation to the price of silver. The gold-silver ratio is a very popular topic among gold traders who are often referred to as gold bugs. The ratio is the price of gold divided by the price of silver.

The chart below shows the gold-silver ratio between 2010 and 2020 during that time the ratio has been as low as 32 and as high as 118.75. This clearly demonstrates just how much gold prices can and do move over time.

The basic gold trading strategy using the gold-silver ratio is to sell gold and buy silver when the gold-silver ratio is high. And to buy gold and sell silver when the gold-silver ratio is low.

The overbought and oversold levels for the ratio were around 70 and 50 respectively. However, in more recent times we have seen gold prices spike, whilst silver prices remained relatively static. Hence the sharp moves in the ratio, seen in the gold divided by the silver price chart above.

Another gold trading strategy you might want to consider is one that’s driven by moving averages on a gold price chart.

In the example above we see three simple moving averages plotted on the gold futures price chart, over a three-month period. The faster-moving or more sensitive 5-period Moving Average line in orange provides clues about short-term price movements in gold futures.

We can see the 5 period Moving Average moving higher and crossing up through the slower moving 20 and 30 periods MA lines (see purple ellipse) signifying rising price momentum in gold. Soon after which the price of gold begins to rise. Later on, we also see the 20 period MA line in light blue cross up through the 30 period line in red (see second ellipse) confirming the upward move in gold prices.

Gold traders would use these kinds of signals as calls to action, in this case, going long of gold on the first signal and perhaps adding to their gold position with the confirmation from the second.

Gold markets have long trading hours, in fact, the yellow metal can be traded 24 hours per day with just a few short trading breaks. That means that you can start trading gold from very early in the morning in Asia and into European markets before trading into the New York session.

Gold is in high demand in Asia as jewelry or dowry/wedding gifts, as well as presents during key holidays and religious festivals. Though this demand has been falling in recent years the sheer size of the populations of countries like China and India which have some 2.70 billion citizens between them means that this gold demand can never be ignored. The constant demand for gold has meant that it has performed very well over the long term when compared to other asset classes.

The chart below from the World Gold Council shows the relative returns generated by a variety of asset types over a 20 year period and only Emerging Market equities have outperformed gold during this time frame.

What’s more gold has significantly outperformed all other commodities during this period. Commodities as a group are shown in red in the chart above and they produced negative returns over the 20 year period back to June 30 2000.

When you trade gold with CFDs you will never own any underlying gold rather you are speculating of the rise and fall of gold prices. As we noted earlier the fact CFDs are cash-settled contracts means that you don’t have to worry about making or taking delivery of and securely storing a very valuable metal.

Gold CFDs are leveraged instruments that means a broker gears up or leverages the money in a trading account to allow retail traders to trade on more equal terms with the institutional commercial and professional traders in the gold markets.

Leverage is a powerful tool that needs to be respected. After all, a standard single lot or contract in gold is worth US$180,000 US dollars (at a gold price of US$1800 per ounce).

Generally, that's not the sort of money that most retail clients have available to them to trade with. And so without leverage, they would not easily be able to trade gold. Because leverage magnifies the size of positions that a gold trader can control, it can also magnify their trading profits. However, leverage can just as easily magnify gold trading losses as well.

Using CFDs to trade gold means that you trade in a fraction of a standard lot size so retail clients can trade gold in the trade size and risk levels that are best suited to their account.

Gold CFD traders are able to trade long (buy) or short (sell) of gold with equal ease and they can have their position open for just a few minutes or much longer periods, depending on their individual gold trading strategy.

When you trade gold you are not just trading and reacting to the news on gold. Rather you are trading an instrument that is at the heart of the global economy, its banking systems and the financial markets. And one which is sensitive to data and news flow and sentiment changes about and from all of these institutions. Against this backdrop, there will almost always be opportunities for retail traders in gold.

Don’t forget that you can practice your gold trading, develop a strategy and become familiar with how the gold markets move, by using our experience account. Which is a realistic simulation of the live markets in which gold traders can experiment without risking any real money.

They can become family with gold charts, placing and managing gold trades and orders and try out new gold trading ideas. When they are ready, they can progress from the demo trading environment and into the live market.