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How to Trade Gold with AdroFx: The Ultimate Guide


Gold is one of the most traded commodities in the world along with oil, natural gas, and grain. But this precious metal is also one of the most interesting assets because it is considered to be a major safe-haven asset and is used to hedge the risk of inflation. In addition, gold is widely used in various industries including jewelry, dentistry, medicine, cell phone manufacturing, etc.

The History of Gold Trading

Gold as an asset has long been of value to mankind, as evidenced by archaeological excavations during which gold jewelry and coins have been found. In 4,000-5,000 years B.C., of the seven first metals discovered by humans, it was gold that gained the status of precious metal, becoming the basis of the economy and monetary system. From ancient times till the XIX century the value of coins of any state was defined not by the face value, but by the gold content, which in the epoch of "paper money" also acted as a "gold standard", which was canceled in 1971 in the USA. This was followed by a global reform of the currency market, which led to the emergence of the forex market after the Jamaican meeting of G7 leaders.

The consequences of the decision - to value all currencies through the U.S. dollar, adopted by the heads of the world's leading nations in the town of Kingston. When the International Monetary Fund officially ratified the "unpegging" of currencies from the "gold standard" in 1978, the U.S. Federal Reserve sharply reduced the proportion of dollars in circulation that are backed by gold. Since then, the number of unsecured printed bills has only grown.

The low gold backing of the 1971 issue of national money was a major motive for the U.S. government to abandon the gold peg. At that time there was a huge amount of cash dollars in Europe, received by states in the Marshall Plan as loans for post-war reconstruction, which occurred by the middle of the 20th century. European countries were willing to pay back not only the loans but also the paper American money, demanding real precious metal in return.

What Moves the Price of Gold?

History shows that investors consider various fundamental factors when trading this asset. Of course, the intrinsic value of the metal is limited, but every year there is less and less of it on the ground, and then it is only a matter of time before its value increases. Although the price of gold is not controlled by any central authority, some factors affect the movement of this precious metal's quote. So, let's take a look at what the price of gold depends on.

Why Trade Gold in 2022

Traders buy gold for a variety of reasons, but the most common ones are the following:

How to Trade Gold

There are many methods to trade gold online, including spot and futures markets, as well as options, funds, and gold mining stocks. Precious metals such as gold are highly liquid. It is interesting to note that the daily trading volume of this yellow metal is higher than that of most currency pairs, except for flagships like EUR/USD, USD/JPY, and GBP/USD. This means that the cost of starting to trade gold is often quite small. Available tight spreads and high liquidity make speculation on the price of gold popular with a large number of CFD traders. Many investors put their capital into gold, viewing it as a safe-haven asset. Traders move their funds into safe investments, at times of extreme market volatility, or during dramatic downturns. Investments in metals help them reduce potential risks because gold prices tend to rise during turbulent times. Of course, the transaction options for those who just want to preserve capital by investing in gold and those who want to transact almost every day are completely different. Once you choose the right one for you, develop a strategy for using it. For example, in almost all cases you will have to keep track of news and events that affect gold as well as mining stocks.

Risks Associated with Trading Gold

Online gold trading can be used to hedge economic risks, but trading gold, when an investor speculates on fluctuations in its price, involves high risk. First of all, gold differs from most traded assets on the market because its value has little correlation with the value of other assets. In addition, the price of gold is influenced not only by supply and demand but also by market news. Therefore, the price of gold can change rapidly and unexpectedly, regardless of the direction of the current trend.

Finally, there is a risk of capital loss, especially in the case of high leverage in CFD trading.

Keeping all of this in mind, you should develop a risk management plan before you start trading gold. Some of the most important risk management techniques for active day-traders include the risk-reward ratio, Stop-Loss, Take-Profit orders, and the one percent rule.

How to Start Trading Gold

If you have read till this part, you may be wondering how to start trading gold. If so, we will tell you how to open an online trading account and start trading gold with AdroFx, a broker that allows you to trade gold without any commission. Keep in mind that the same procedure for opening an online trading account is used by many other CFD brokers.

Strategies for Gold Trading in 2022

The following conditions are necessary for the short position: the price reaches the upper line of the Bollinger, and a bearish candle is seen on the chart. The Stochastic lines are directed downward and are located in the overbought zone. For a long position, the opposite is true: the price is near the bottom line, and a bullish candlestick is clearly visible, while the Stochastic is in the oversold area, with its lines pointing up.

In general, there is no limit to the choice of assistant indicators for gold trading. The only important point is that indicators should not lag. Therefore, gold traders often use modified versions of Stochastic and MACD, as well as Fibonacci levels for setting Stop Loss and Take-Profit.

Tips for Trading Gold

If you want your gold trading strategy to bring you the desired results, then you should pay attention to the following tips for profitable gold trading:

Conclusion

Before trading gold, remember that this type of trading requires you to have knowledge, skills, trading experience, as well as strict discipline and a clear structured plan. Only a sound trading strategy can help you profit from gold trading. This financial instrument is difficult for beginners, but those who have experience trading currencies can try their hand at gold trading.

Gold is a good indicator of a trader's skill. By opening a position in gold you can make a profit or a loss for sure. If you fail to profit from gold, then we recommend you adjust your trading strategy in currency pairs.

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