Section 7: Top Gold Trading Strategies That Actually Work

There are hundreds of strategies to determine when to buy or sell gold. If you study carefully,
you will get more chances to make profits in the gold market.

Before you start trading gold, let's see these popular gold trading strategies below:

1. Gold-Silver Ratio 

The gold-silver ratio is the number of silver ounces you will need to trade to receive one ounce of
gold.

For example, if the gold-silver ratio is 40:1, that means, you need 40 ounces of silver to buy one
ounce of gold at the current price.

Generally, the gold-silver ratio behaves like this:

 When the price of gold rises faster than the price of silver, the ratio will rise.
 When the price of silver rises faster than the price of gold, the ratio will fall.
 When the price of gold falls faster than the price of silver, the ratio will fall.
 When the price of silver falls faster than the price of gold, the ratio will rise.

Investors track the ratio to know which asset is stronger than the other, in order to determine
how to buy or sell gold. 

When the gold-silver ratio is trending:

Gold-Silver Ratio Gold & Silver Current Trend How to Trade

Uptrend Uptrend Buy gold

Uptrend Downtrend Sell silver

Downtrend Uptrend Buy silver

Downtrend Downtrend Sell gold

2. The “Follow the Yen” Method

Follow the Yen strategy is an interesting gold-trading approach that is based on the movement
of the Japanese Yen. It works on the basis that since gold and the Yen are very closely related
such that their charts almost look the same, the Yen movements can be used in trading gold.
Positive gold-yen correlation chart

An example of the gold-yen correlation theory was seen during the Brexit period. The period
marked a high-risk time in the world as everyone watched to see what the decision would be. At
this time, investors from across the world began looking for “safe haven” currencies such as the
yen and USD. Due to this, the rate of the steadily went up. Coincidentally, or due to this positive
correlation, the price of gold also escalated.

In short, when the JPY gains value, gold will also gain.

Therefore, the easiest ways to trade gold by following the Yen are:

 When Japan releases positive economic data, buy gold

 When Japan releases negative economic data, sell gold

Similarly,

 When world risks are high such as during recessions or pandemics, the Yen will grow; so
buy gold
 When world risks decrease, such as when the global economy is flourishing, the Yen will
be stagnant; so sell gold

3. The Gold Vs Gold Indices Method

The third approach takes into consideration that gold shares are known to provide future insight
in the movement of the metal. As such, by comparing the movement of gold and its shares, it is
possible to know when it is about to rise or fall.

So, this approach works by plotting the performance of major gold shares such as the Amex
Gold Bugs Index (HUI) against real gold. The HUI comprises of 14 leading gold mining
companies which never hedge their gold production beyond one and a half years. Therefore, the
pricing of their shares is quite constant and by comparing it to how real gold is performing, we
can speculate on the future movement of gold prices.

The trick in using this method is:

 When the price of gold and the price of the HUI increase but the HUI price does not cost
more than actual gold, consider this an indicator that gold is going to depreciate in value
soon. In short, sell your gold or if you are dealing in physical gold, don’t buy at this time.

However, if the HUI price is higher than that of gold, it is an indication that the metal will
continue increasing in value.

 When the price of gold and the HUI both fall but the HUI does not cost less than gold,
this is an indicator that gold is about to gain value soon. Therefore, prepare to buy gold.

However, if the HUI costs less than gold, then it means that the metal will continue losing value
for some time.