Professional Documents
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of trading gold
FOREX.com is a registered FCM and RFED with the CFTC and member of
the National Futures Association (NFA # 0339826). Forex trading involves
significant risk of loss and is not suitable for all investors. Spot Gold and
Silver contracts are not subject to regulation under the U.S. Commodity
Exchange Act. *Increasing leverage increases risk.
Contents
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
1
‘‘
Human beings have long valued and treasured
gold for its inherent luster and malleability. In
The desire for gold
fact, gold has been used in human commerce
since the societies of the ancient Middle East is the most universal
over 2,500 years ago, making it the oldest form and deeply rooted
of money still recognized today. Gold’s long commercial instinct
’’
track record as a store of value despite wars,
of the human race
natural disasters, and the rise and fall of great
empires means that it is generally seen as the Gerald M. Loeb,
Founding Partner of E.F. Hutton1
ultimate “safe-haven” asset.
1 . http://www.nationalgoldgroup.com/history-of-gold-coins/
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
2
$2,000.0
$1,800.0
Prices expode in the
mid- and late-2000s
$1,600.0
$1,400.0
$1,200.0
$1,000.0
$800.0
Minimal interest in trading gold in the ‘80s & ‘90s
$600.0
$400.0
GFC
$200.0
$0.0
1985 1990 1995 2000 2005 2010
While gold has generally held its value for Interest in gold grew slowly through the 2000s
centuries, traders’ interest has waxed and waned before exploding with the onset of the Great
in recent years. From the early 1980s until the early Financial Crisis in 2008. Gold prices rose in
2000s, there was little interest in trading safe- sympathy, hitting an all-time high above $1900 in
haven gold amidst the strong, stable economic late 2011. In this guide, we will discuss the major
growth and high-flying stock markets. As a result, forces that drive gold prices, along with some
gold generally consolidated between $300/oz and ideas for trading strategies and some of the most
$500/oz for twenty years, from 1982-2002. common methods for trading gold.
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
3
10%
Gold is one of the most difficult financial assets to
value. Gold is similar to a currency like the U.S. dollar
or the euro because it is durable, portable, uniform
across the world, and widely accepted; however, unlike
these more commonly traded currencies, gold is not In fact, only about 10% of
supported by an underlying economy of workers, the world’s gold is used
in industry: primarily in
companies, and infrastructure. electronics, due to its
conductivity and anti-
In other ways, gold is more similar to a commodity corrosive properties.
like oil or corn because it comes from the ground and
90%
has standardized physical characteristics. Unlike other
commodities, though, the price of gold often fluctuates
independently of its industrial supply and demand.
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
4
On the other hand, when real interest rates are high, strong
returns are possible in cash and bonds and the appeal of
holding a yellow metal with few industrial uses diminishes.
One easy way to see a proxy for real interest rates in the
United States, the world’s largest economy, is to look at
the yield on Treasury Inflation Protected Securities (TIPS).
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
5
One of the biggest points of contention for gold Unfortunately, this overly simplistic view of the
traders is on the true correlation between gold correlation does not hold in all cases. The chart
and the U.S. Dollar. Because gold is priced in below shows the rolling 100-day correlation
U.S. Dollars, it would be logical to assume that coefficient between gold and the U.S. Dollar.
the two assets are inversely correlated, meaning The correlation coefficient measures how
that the value of gold and the dollar move closely together gold and U.S. dollar have
opposite to one another. In layman’s terms, it moved over the last 100 days; a reading of 1.0
takes fewer dollars to buy an ounce gold when would show that they moved in perfect lockstep
the value of the dollar rises, and it takes more with one another, while a reading of -1.0
greenbacks to buy an ounce of gold when the would show that their movements have been
value of those dollars is lower. diametrically opposed.
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
6
0.5
-0.5
-1
Date
5/11/2006
9/19/2006
1/30/2007
6/8/2007
10/16/2007
2/26/2008
7/3/2008
11/10/2008
3/23/2009
12/7/2009
12/7/2009
4/19/2010
8/25/2010
1/3/2011
2/12/2011
9/20/2011
1/30/2012
6/7/2012
10/15/2012
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
7
For short-term traders, a classic way to try to Traders differ in their opinions on the “best”
profit from the frequent trends in gold is to use timeframes for the two moving averages, but
a moving average crossover strategy. In this we’ve found that a 10/60 moving average
strategy, a trader would look to buy gold if a crossover on the 1hr chart can be a strong
shorter-term moving average crossed above a combination for shorter-term traders.
longer-term moving average and sell when the Historically, these settings have allowed traders
shorter-term moving average crosses below the to successfully trade the middle portion of a
longer-term average. trend, though there is no guarantee of future
performance. The chart shows how this strategy
could be applied in the gold market:
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
8
3
1340.0
1
at $1315 (+$33), enter new sell trade
10-hour ma crosses below
60-hour ma - gold sell 1330.0
trade at $1318
1320.0
4
1310.0
1300.0
BULLISH 10/60
cross - close sell
trade at $1331,
enter new buy 1290.0
trade 1287.8
1284.9
1282.5
1280.0
1270.0
10-hour ma
60-hour ma
2 10-hour ma crosses back above 60-hour
ma - close sell trade at $1282 (+$36),
enter new buy trade
1260.0
1250.0
h 9h 16:00 10th 10th 13:00 14th 14th 11:00 16th 17:00 17th 17th 14:00 21st 22nd 22nd
Source: FOREX.com
4
do not cross again until point #2 a few days later, after Like any methodology though, this strategy will
gold has trended down to the upper $1200s. produce losing trades as well. In this case, the big
spike near point #4 caused the sell trade from #3 to
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
9
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
10
2000 4
1800 3
1600
2
1400
1 PRICE (left axis)
1200
TIPS YIELD (right axis)
0
1000
800 -1
600 -2
APR 14
OCT 14
APR 16
APR 15
OCT 15
APR 13
OCT 13
APR 12
OCT 12
JAN 14
JAN 16
JAN 15
JAN 13
JAN 12
JUL 14
JUL 16
JUL 15
JUL 13
JUL 12
Therefore, longer-term traders may want to The ability to use a filter based on real interest
consider buy opportunities if real yields are rates is one of the unique features that traders can
below 1%, a level which has historically been use to gain an edge when trading gold, but the
supportive of gold prices. Conversely, if real trading strategies and opportunities in trading the
yields rise above 2%, investors may want to focus world’s oldest “currency” are truly limitless.
more on sell trades. Of course, this relationship
between real yields and gold prices plays out
over longer-term timeframes, so shorter-term
gold traders can generally ignore the level of
interest rates.
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
11
inverse correlation with the U.S. dollar was covered at length above,
and gold has historically moved independently of stock and bond
market prices as well.
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
12
Forex trading involves significant risk of loss and is not suitable for all investors. Increasing leverage increases risk.
FOREX.com is a registered FCM and RFED with the CFTC and member of the
National Futures Association (NFA # 0339826). Forex trading involves significant
risk of loss and is not suitable for all investors. Spot Gold and Silver contracts are
not subject to regulation under the U.S. Commodity Exchange Act. *Increasing
leverage increases risk.