Gold Trading Strategies that Work

by Sean Bryant on September 13, 2017

gold strategies

Gold is one of the world’s most heavily traded commodities. There are several successful online trading strategies that you can use when opening positions on this always popular asset. CFD broker UFX enables you to take advantage of advanced charts and benefit from the best technical indicators and most innovative trading tools.

Technical analysis is often used by traders to identify the parameters for the price movement of an asset. For example, a support level indicates a price at which the asset is unlikely to fall below, a resistance level shows a price that the asset is struggling to exceed and a trend line demonstrates the upward or downward momentum of the asset over various timeframes. Traders use these methods to assess the strengths and weaknesses of various assets such as Gold to predict future price changes.

By studying the past performance of Gold prices, you can anticipate the psychology of other market participants when prices approach certain levels. This will help you complete your analysis and determine your entry/exit points. You can also add mathematical indicators to a chartist approach. There are several combinations of indicators that may be relevant, depending on your trading style and profile.  These include RSI and Bollinger Bands, RSI and MACD, MACD with Moving Averages and RSI with Ichimoku.

Moving Averages and RSI

Moving Averages (MA) are trend-following indicators that display the average price of an asset such as Gold over specific periods of time. They are often useful in terms of spotting support and resistance levels, as well as for determining the main trend of an asset. The Relative Strength Index (or RSI), on the other hand, highlights overbought (RSI> 70) and oversold (RSI <30) situations. When prices reach these levels, the trend frequently reverses.

One successful Gold trading strategy is to combine the RSI indicator with Moving Average crossovers. MA crossovers occur when a short MA crosses a long one. A bearish signal will appear when the shorter MA breaks below the longer one, while the RSI exits the overbought area. When the situation is reversed, a bullish signal will appear.

The Relationship Between Gold and the USD

When trading Gold, it is important to be aware of the factors that can increase its volatility. Inter-market analysis and full consideration of fundamental issues such as politics are often useful for traders seeking to anticipate periods when prices may fluctuate significantly.

Most importantly, traders should consider the inverse relationship between Gold and the U.S. dollar. As Gold prices are denominated in USD, any change in the greenback’s value will usually affect the price of Gold. The relationship between Gold and the U.S. dollar is described as a negative correlation, as they evolve in opposite directions.

Decisions made the Federal Reserve regarding U.S. monetary policy also have an impact on the U.S. Dollar, and therefore, on the price of Gold. The Fed tightens or loosens monetary policy as it attempts to achieve its objectives regarding the cost and the availability of funds in the U.S. economy. Smart Gold traders always pay close attention to FOMC minutes, speeches and announcements by Fed Chair Janet Yellen.

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Sean Bryant

Sean Bryant created in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and he wife are avid world travelers. He enjoys spending time with his daughter Colette and dog Charlie.

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