How to Trade Gold in Step-by-Step Order

Because of the unique position within the world’s economic and political systems, the gold market offers excellent liquidity and exceptional profit chances in practically all conditions, regardless of its bullish or bearish behavior. While many individuals choose to hold the metal outright, futures, equities, and options markets provide tremendous leverage with manageable risk.

Because of the unique position within the world’s economic and political systems, the gold market offers excellent liquidity and exceptional profit chances in practically all conditions, regardless of its bullish or bearish behavior. While many individuals choose to hold the metal outright, futures, equities, and options markets provide tremendous leverage with manageable risk.

Market participants frequently fail to fully capitalize on gold price swings because they lack knowledge of the specific characteristics of global gold markets and the hidden hazards that can erode earnings. Moreover, not every investment instrument is made equal: Some gold tools are more likely than others to generate consistent bottom-line outcomes.

Trading the yellow metal is not difficult to learn, but it does require specific skill sets. Beginners should be cautious, but experienced traders will profit from adopting these four strategic measures into their everyday trading practices. Meanwhile, try until the complexities of these intricate marketplaces become second nature.


If you want to begin trading gold or adding it to your portfolio of long-term investments, we present four simple steps to get you started.

First, understand the fundamentals that drive gold’s price, then gain a long-term perspective on gold’s price behavior, and last, master market psychology.

Select the optimal method for acquiring gold, either directly in physical form or indirectly through futures contracts or a gold ETF or mutual fund.

1. What Makes Gold Move

As one of the world’s oldest currencies, gold is firmly ingrained in the financial community’s mindset. Gold reacts to a restricted number of price catalysts, even though nearly everyone has an opinion. Each of the following forces exhibits a polarity that influences emotion, volume, and trend intensity:

  • The dynamics of inflation and deflation
  • Fear and greed
  • Offer and demand

While market participants trade gold in response to one of these polarities, they assume a more significant risk when another polarity is driving price movement. For instance, suppose a global financial market selloff causes gold to have a significant rebound. Many traders believe that fear is going the price of gold and entering the market thinking that the moving mass will mindlessly move the price higher. However, inflation may have been the underlying cause of the stock’s collapse, drawing a technical crowd that will aggressively sell against the gold surge.

Combinations of these factors are always at work in global markets, producing long-term themes that correspond to long uptrends and downtrends. For instance, the 2008 Federal Reserve (FOMC) economic stimulus initially had minimal influence on gold because market participants were preoccupied with high levels of panic stemming from the 2008 financial crisis. However, this quantitative easing fostered deflation, setting the stage for a significant turnaround in the gold market and other commodity groupings.

This recovery did not occur quickly because reflationary forces were at work, sending depressed financial and commodity-based assets back toward their historical norms. In 2011, with the conclusion of reflation and the intensification of quantitative easing programs by central banks, gold finally peaked and began to decline. 1 VIX decreased simultaneously, indicating that fear was no longer a key market mover.

2. Recognize the Crowd

Gold draws different groups with distinct and often contradictory interests. Gold enthusiasts are at the top of the heap, amassing actual bullion and dedicating a disproportionate share of their family’s wealth to gold stocks, options, and futures. These are long-term players who are seldom deterred by downtrends and eventually displace less ideological competitors. In addition, almost the entire community of gold bugs consists of retail investors, with few funds solely committed to the long side of the precious metal.

Gold enthusiasts contribute substantial liquidity while maintaining a floor for futures and gold equities by providing a constant supply of purchasing demand at lower prices. In addition, they perform the opposite function of facilitating the admission of short-sellers, particularly in dynamic markets when one of the three fundamental factors shifts in favor of significant purchasing pressure.

In addition, gold attracts substantial hedging activity from institutional investors, who purchase and sell it in tandem with currencies and bonds using “risk-on” and “risk-off” techniques. Funds generate baskets of assets that match growth (risk-on) and safety (risk-off) and trade these combinations using blazingly fast algorithms. They are trendy in highly contentious markets with below-average public engagement.

3. Consult the Long-Term Graph

Take the time to understand the gold chart thoroughly and out, beginning with at least 100 years of historical data. In addition to establishing trends that endured for decades, the metal has also depreciated for extended periods, depriving gold investors of money. This study indicates price levels that must be monitored from a strategic aspect if the yellow metal returns to test.

Gold’s recent history shows minimal fluctuation until the 1970s, when, following the termination of the gold standard for the dollar, it started a long upswing supported by growing inflation resulting from soaring crude oil prices. After reaching a high of $2,420 per ounce in February 1980, gold prices dropped to about $800 by the mid-1980s in response to the Federal Reserve’s restrictive monetary policies.

The ensuing slump lasted until the late 1990s, when gold began its historic upswing that concluded at $2,235 per ounce in February 2012. Since then, a persistent decrease has resulted in the loss of around 600 points in four years; despite a 10-percent increase in the first quarter of 2016 — the most significant quarterly rise in three decades — gold is currently trading at $1,882 per ounce as of May 2022.

4. Choose Your Venue

Liquidity follows gold’s price movements, rising when it moves dramatically up or down and reducing when it is relatively stable. Due to far lower average participation rates, this oscillation has a more substantial influence on futures markets than on equities markets. Chicago’s CME Group’s new products have not much altered this equation in recent years.

In October 2010, CME provided three major gold futures: a 100-ounce contract, a 50-ounce mini contract, and a 10-ounce micro contract.

4567 While the volume of the micro contract was over 6,600,000 in 2021, the importance of the mini and most significant contracts was around 26,000 and 1.2 million, respectively.

This lack of participation has little effect on long-dated futures held for months. However, it significantly influences the trade execution of short-term contracts, resulting in higher costs due to slippage.

The SPDR Gold Trust Shares (GLD) exhibit the highest participation in all market conditions, with spreads as low as one penny. In May 2022, the average daily volume was 13.65 million shares, making the stock accessible at all-day hours. The Cboe GOLD ETF Volatility Index follows options on GLD, providing an additional liquid alternative with active participation that keeps spreads low.

The VanEck Vectors Gold Miners ETF (GDX) has more daily percentage fluctuation than GLD but represents a higher risk because correlation with the yellow metal can fluctuate substantially from today. Large mining corporations hedge extensively against price swings, mitigating the impact of spot and futures pricing. Operations may have substantial holdings in other natural resources, such as silver and iron.

Bottom Line

Profitably trade the gold market by following four procedures. Learn how three polarities influence the bulk of gold purchase and sale choices. Secondly, acquaint yourself with the many communities specializing in gold trading, hedging, and ownership. Third, devote time to analyzing the long- and short-term gold price charts, focusing on potential price thresholds. Choose your risk-taking venue emphasizing good liquidity and simple trade execution.

Leave a Comment