Trading Gold Online – How To Trade Gold on the Internet

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How to Trade Gold (GLD, GDX) in 4 Steps

Whether it’s behaving like a bull or a bear, the gold market offers high liquidity and excellent opportunities to profit in nearly all environments due to its unique position within the world’s economic and political systems. While many folks choose to own the metal outright, speculating through the futures, equity and options markets offer incredible leverage with measured risk.

Market participants often fail to take full advantage of gold price fluctuations because they haven’t learned the unique characteristics of world gold markets or the hidden pitfalls that can rob profits. In addition, not all investment vehicles are created equally: Some gold instruments are more likely to produce consistent bottom-line results than others.

Trading the yellow metal isn’t hard to learn, but the activity requires skill sets unique to this commodity. Novices should tread lightly, but seasoned investors will benefit by incorporating these four strategic steps into their daily trading routines. Meanwhile, experimenting until the intricacies of these complex markets become second-hand.

1. What Moves Gold

As one of the oldest currencies on the planet, gold has embedded itself deeply into the psyche of the financial world. Nearly everyone has an opinion about the yellow metal, but gold itself reacts only to a limited number of price catalysts. Each of these forces splits down the middle in a polarity that impacts sentiment, volume and trend intensity:

  • Inflation and deflation
  • Greed and fear
  • Supply and demand

Market players face elevated risk when they trade gold in reaction to one of these polarities, when in fact it’s another one controlling price action. For example, say a selloff hits world financial markets, and gold takes off in a strong rally. Many traders assume that fear is moving the yellow metal and jump in, believing the emotional crowd will blindly carry price higher. However, inflation may have actually triggered the stock’s decline, attracting a more technical crowd that will sell against the gold rally aggressively.

Combinations of these forces are always in play in world markets, establishing long-term themes that track equally long uptrends and downtrends. For example, the Federal Reserve (FOMC) economic stimulus begun in 2009, initially had little effect on gold because market players were focused on high fear levels coming out of the 2008 economic collapse. However, this quantitative easing encouraged deflation, setting up the gold market and other commodity groups for a major reversal.

That turnaround didn’t happen immediately because a reflation bid was underway, with depressed financial and commodity-based assets spiraling back toward historical means. Gold finally topped out and turned lower in 2020 after reflation was completed and central banks intensified their quantitative easing policies. VIX eased to lower levels at the same time, signaling that fear was no longer a significant market mover.

2. Understand the Crowd

Gold attracts numerous crowds with diverse and often opposing interests. Gold bugs stand at the top of the heap, collecting physical bullion and allocating an outsized portion of family assets to gold equities, options, and futures. These are long-term players, rarely dissuaded by downtrends, who eventually shake out less ideological players. In addition, retail participants comprise nearly the entire population of gold bugs, with few funds devoted entirely to the long side of the precious metal.

Gold bugs add enormous liquidity while keeping a floor under futures and gold stocks because they provide a continuous supply of buying interest at lower prices. They also serve the contrary purpose of providing efficient entry for short sellers, especially in emotional markets when one of the three primary forces polarizes in favor of strong buying pressure.

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In addition, gold attracts enormous hedging activity by institutional investors who buy and sell in combination with currencies and bonds in bilateral strategies known as “risk-on” and risk-off.” Funds create baskets of instruments matching growth (risk-on) and safety (risk-off), trading these combinations through lightning-fast algorithms. They are especially popular in highly conflicted markets in which public participation is lower than normal.

3. Read the Long-Term Chart

Take time to learn the gold chart inside and out, starting with a long-term history that goes back at least 100 years. In addition to carving out trends that persisted for decades, the metal has also trickled lower for incredibly long periods, denying profits to gold bugs. From a strategic standpoint, this analysis identifies price levels that need to be watched if and when the yellow metal returns to test them.

Gold’s recent history shows little movement until the 1970s, when following the removal of the gold standard for the dollar, it took off in a long uptrend, underpinned by rising inflation due to skyrocketing crude oil prices. After topping out at $2,076 an ounce in February 1980, it turned lower near $700 in the mid-1980s, in reaction to restrictive Federal Reserve monetary policy.

The subsequent downtrend lasted into the late 1990s when gold entered the historic uptrend that culminated in the February 2020 top of $1,916 an ounce. A steady decline since that time has relinquished around 700 points in four years; although in the first quarter of 2020 it surged 17% for its biggest quarterly gain in three decades, as of December 2020, it’s trading at $1,267 per ounce.

4. Choose Your Venue

Liquidity follows gold trends, increasing when it’s moving sharply higher or lower and decreasing during relatively quiet periods. This oscillation impacts the futures markets to a greater degree than it does equity markets, due to much lower average participation rates. New products offered by Chicago’s CME Group in recent years haven’t improved this equation substantially.

CME offers three primary gold futures, the 100-oz. a contract, a 50-oz. mini contract and a 10-oz. a micro contract, added in September 2020. While the largest contract’s volume was over 67.6 million in 2020, the smaller contracts were not as widely traded; 87,450 for the mini and .05 million for the micro. This thin participation doesn’t impact long-dated futures held for months, but strongly impacts trade execution in short-term positions, forcing higher costs through slippage.

The SPDR Gold Trust Shares (GLD) shows the greatest participation in all types of market environments, with exceptionally tight spreads that can drop to one penny. Average daily volume stood at 2.34 million shares per day in December 2020, offering easy access at any time of day. CBOE options on GLD offer another liquid alternative, with active participation keeping spreads at low levels.

The VanEck Vectors Gold Miners ETF (GDX) grinds through greater daily percentage movement than GLD but carries a higher risk because correlation with the yellow metal can vary greatly from day to day. Large mining companies hedge aggressively against price fluctuations, lowering the impact of spot and futures prices, while operations may hold significant assets in other natural resources, including silver and iron.

Bottom Line

Trade the gold market profitably in four steps. First, learn how three polarities impact the majority of gold buying and selling decisions. Second, familiarize yourself with the diverse crowds that focus on gold trading, hedging, and ownership. Third, take time to analyze the long and short-term gold charts, with an eye on key price levels that may come into play.

Finally, choose your venue for risk-taking, focused on high liquidity and easy trade execution.

Online Gold Trading

Jay Hawk
Contributor, Benzinga

Non-US Traders Can Spot Trade Gold with FOREX.com

Non-US Traders Can Spot Trade Gold with FOREX.com

FOREX.com account holders can spot trade gold and silver with one of Benzinga’s top-rated lost-cost brokers.

For thousands of years, gold has served as one of the original stores of wealth and mediums of exchange. If you have some trading experience and think you want to trade gold online, keep in mind that the broker you select and the online trading platform you use can have a significant impact on your potential profits.

Step 1: Define Your Goals

Have a basic trading or investment plan in mind and know why you want to operate in the gold market.

Decide whether you want gold as economic insurance by physically possessing the metal, keeping it as a store of wealth or taking advantage of market moves to make profitable trades. This helps you determine the best way to invest in gold.

Physical Possession

If you plan to invest in gold over decades and use your investment as a store of wealth, as an inflation hedge and/or as an alternative form of hard currency, then taking possession of physical gold would probably be your best choice.

You can still currently buy and sell physical gold, but If you want to trade gold actively and are based in the United States, you will probably need to open a commodity account to trade gold futures and options. You can also use a stockbroking account to trade gold ETFs or gold mining company shares that have prices which tend to reflect changes in the value of gold.

Other reasons to purchase gold could be for savings purposes, which typically involves placing physical gold in a depository or purchasing gold certificates.

Build Wealth Over Time

U.S.-based brokers that offer trading in the gold market will often also let you trade in gold shares and ETFs. You can invest in gold by purchasing gold mining company shares or exchange-traded funds (ETFs) with good future prospects.

This gives you a choice about how you prefer to trade in the market. Keep in mind that gold mining shares, in addition to reflecting movements in the price of gold, also have their own corporate dynamics and can be affected by general stock market moves.

Speculative Purposes

If you qualify, you can also trade gold purely for speculative purposes, which generally involves buying and selling gold futures on the Comex for U.S. based gold traders. However, due to the Dodd-Frank Act, trading in leveraged and spot precious metals in the United States has been prohibited since 2020, so U.S.-based traders cannot use contracts for difference (CFDs) to trade gold.

Step 2: Develop a Trading Strategy

Once you’ve defined your goals, you can work out a viable strategy for your needs.

Buying physical gold or purchasing gold for savings purposes doesn’t take much strategy. You generally just wait for a sell-off in the gold market and purchase the amount you wish to invest in.

Short Term Strategies

Trading gold futures for profit requires much more strategy you plan to use. Short term strategies such as day trading and scalping can be viable choices with a competent discount broker, although you may be required to make a substantial initial deposit.

Historical gold price charts and the ability to perform technical analysis on them can be invaluable to short term traders. Other important considerations when trading in the gold futures market consist of the amount of open interest in the front month and activity in subsequent futures delivery dates.

Medium and Long-Term Trading

Medium and longer-term trading also require strategic considerations, such as the underlying fundamentals of gold, including production figures and the overall supply and demand for the metal.

Unless you’re purely a technical trader, your trading strategy will probably take all of these fundamental factors into account.

Market Sentiment

Geopolitical events often influence the precious metals market. Gold and silver have traditionally been economic safe havens, which means that when unrest in the world occurs, people generally buy gold since it represents a form of hard currency. Events such as the outbreak of war, U.S. interest rate changes, announced central bank gold reserve shifts and elections in gold producing countries can often influence world gold prices.

Market sentiment can also be an important directional indicator, so the Commodity Futures Trading Commission’s (CFTC’s) Commitment of Traders (COT) report can be useful in that regard for the gold market. This report is released every Friday at 3 p.m. CST by the CFTC and provides a breakdown of the open interest in gold futures and options on futures further broken down by trader type and separated into long and short positions. Open interest consists of the amount of outstanding futures and options contracts that have not been liquidated and excessive imbalances in open interest can signal market reversals.

Step 3: Pick a Gold Broker

Once you’ve defined your objectives and have developed an appropriate strategy for meeting them, you can find the best online brokerage for your needs and test your trading plan in a demo account. If you plan to invest in and possess physical gold, you can obtain bullion or gold coins from a dealer who specializes in selling metallic gold.

The brokers we have highlighted below allow you to trade gold futures, options and shares on gold mining stocks, as well as ETFs that invest in gold and gold mining company shares. All of the brokers on the list have a base in the United States and oversight from the National Futures Association (NFA) and the CFTC.

How to Start Day Trading in Gold

Andrzej Barabsz / Getty Images

The value of gold fluctuates from moment to moment, as it trades on public exchanges where it has a price that is determined by supply and demand. While you don’t eat it or drink it, people are attracted to gold. It’s been used as a currency because it doesn’t corrode, and the material allows for some absorption of light creating that yellow glow.

The reasons people buy or sell gold–creating the demand and supply flow–can be pure speculation, to acquire or distribute physical gold, and as a hedge for commercial application. For day traders, the purpose of trading gold is to profit from its daily price movements.

Futures Markets

Day trading gold is speculating on its short-term price movements. Physical gold is not actually handled or taken possession of, rather the transactions take place electronically and only profits or losses are reflected in the trading account.

There are a number of ways to trade gold. The main way is through a futures contract. A futures contract is an agreement to buy or sell something–like gold–at a future date. Buying a gold futures contract doesn’t mean you actually have to take possession of the physical commodity.

Day traders close out all contracts (trades) each day and make a profit based on the difference between the price they bought the contract and the price they sold it at. Gold futures trade on the Chicago Mercantile Exchange (CME). There is a standard gold future (GC) which represents 100 troy ounces of gold, and a micro gold future (MGC), which represents 10 troy ounces.

On the futures exchange, gold moves in $0.10 increments only. This increment is called a “tick”–it is the smallest movement a futures contract can make. If you buy or sell a futures contract, how many ticks the price moves away from your entry price determines your profit or loss. To calculate your profit or loss (your trading platform will also show you, but it is good to understand how it works) you’ll first need to know the tick value of the contract you are trading.

  • For a standard contract, the tick value is $10. This is because the contract represents 100 ounces of gold, and 100 ounces multiplied by the $0.10 tick size results in $10. That means for each contract, a one tick movement will result in a profit or loss of $10. If it moves 10 ticks, you win or loss $100. If it moves 10 ticks and you are holding 3 contracts, your profit or loss is $300.
  • For a micro contract, the tick value is $1. This is because the contract represents 10 ounces of gold, and 10 ounces multiplied by the $0.10 tick size results in $1. That means for each contract, a one tick movement will result in a profit or loss of $1. If it moves 10 ticks, you win or loss $10. If it moves 10 ticks and you are holding 3 contracts, your profit or loss is $30.

Gold Futures

The amount you need in your account to day trade a gold futures contract will depend on your futures broker. NinjaTrader for examples requires you have $500 in your account to open a position for one E-Micro Gold Futures (MGC) contract. You also need enough in the account to accommodate for potential losses (need much more than $500).

For a day trade of a standard Gold Futures (GC) contract, you need $1000 in your account, plus additional funds to accommodate losses. The amount required by your broker to open a day trading position is called Intra-day margin; it varies by the broker and is subject to change.

These figures assume you are day trading and closing out positions before the market closes each day. If you hold positions overnight, you are subject to Initial Margin and Maintenance Margin requirements, which will require you have more money in your account.

Day Trading Gold, ETFs and/or Stock Market

Another way to day trade gold is through a fund which trades on a stock exchange, like the SPDR Gold Trust (GLD). If you have a stock trading account, you can trade the price movements in gold.

The trust holds gold in reserve, and therefore, its value is reflective of the price of gold. The price of the SPDR Gold Trust is approximately 1/10 of the price of gold. So if gold futures are trading at $1500, then the Gold Trust will trade at approximately $150.

The trust trades like any stock. The minimum price movement is $0.01, therefore you make or lose $0.01 for each share you own each time the price changes by a penny. Stocks and ETFs are typically traded in 100 share blocks (called lots) so if the price moves a penny and you are holding 100 shares, you make or lose $1.

If the price moves $1, from $120 to $121, you make or lose $100 on your 100 share position. If you are holding 500 shares, you make or lose $500 on that same price move. The amount you need in your account to day trade a gold ETF depends on the price of the ETF, your leverage, and position size.

For a day trade of stocks or ETFs in the US, you’re required to have a $25,000 minimum balance in your account. Depending on how much income you want to generate and your leverage, you may wish to have more than $25,000 available to you.

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