Gold has long been valued by societies all over the world for its inherent lustre and malleability. Traders also use gold to hedge against inflation and diversify their investments because gold often reacts differently to market stimuli than other assets. When real interest rates are low, investment alternatives like cash and bonds tend to provide a low or negative return, pushing investors to seek alternative ways to protect the value of their wealth.
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 of the biggest points of contention for gold traders is on the true correlation between gold and the U. Because gold is priced in U. Unfortunately, this overly simplistic view of the correlation does not hold in all cases.
Periods of financial stress can cause the U. This is usually because traders will buy both gold and the U. For short-term traders, a classic way to try to profit from the frequent trends in gold is to use a moving average crossover strategy. In this strategy, a trader would look to buy gold if a shorter-term moving average crossed above a longer-term moving average and sell when the shorter-term moving average crosses below the longer-term average.
Historically, these settings have allowed traders to successfully trade the middle portion of a trend, though there is no guarantee of future performance. The chart below shows how this strategy could be applied in the gold market:. At point 1, the shorter-term hour moving average crosses below the longer-term period average, suggesting that traders should enter a sell trade as a bearish trend may be forming.
At point 2, the initial sell trade is closed for a solid gain and a new buy trade is triggered as the trend shifts back to the topside. Like any methodology though, this strategy will produce losing trades as well. In this case, the big spike near point 4 caused the sell trade from 3 to be stopped out for a loss.
The chart below shows the relationship between gold prices and the yield on TIPS, a proxy for real interest rates in the United States. A demo account is intended to familiarize you with the tools and features of our trading platforms and to facilitate the testing of trading strategies in a risk-free environment.
Results achieved on the demo account are hypothetical and no representation is made that any account will or is likely to achieve actual profits or losses similar to those achieved in the demo account. Conditions in the demo account cannot always reasonably reflect all of the market conditions that may affect pricing and execution in a live trading environment.
Gold is often viewed as the ultimate safe-haven asset, usually weathering market turbulence and retaining its value in periods of uncertainty.
What influences the price of gold? A Short-Term Strategy For short-term traders, a classic way to try to profit from the frequent trends in gold is to use a moving average crossover strategy. The chart below shows how this strategy could be applied in the gold market: Gold 1 Hour Chart At point 1, the shorter-term hour moving average crosses below the longer-term period average, suggesting that traders should enter a sell trade as a bearish trend may be forming.More...