Speculative gold trading through a broker

Speculative gold trading through a broker

In the article, I will describe the ways to make profits in the gold market. I will also tell about its history and the reasons for rises and falls of the precious metal price in our times.

Historic aspects

Last century South Africa provided around a half of all gold, produced in the world. Yellow metal always attracted speculators’ attention, but especially after the fall of South Africa apartheid regime. It was in 1994, after the Separate Amenities Act was repealed. New RSA president Nelson Mandela was elected by general acclaim of the local people. European descendants started to leave South Africa, taking their capitals with them. First, gold rice was falling during a few years, as white Africans were Mandela was a good person, but a bad president. Soon, gold mining problems began. Gold price surged from 255 dollars in 2001 up to $1920 per troy ounce in 2011. Black skinned Africans didn’t want to work for a low pay any more. Besides, strikes started all over the country. Many mines were blocked by the strikers. Because of decrease in RSA gold mining, gold price was going up on the exchanges for a few years in a row.

Future aspects

Can South Africa “blow up” now? It’s unlikely. However, it can’t be excluded, that there can start big problems related to fight against “apartheid visa versa”, when already white skinned people are suppressed in the country. There also can be local armed clashes. So, problems with gold production can still increase.

It should be borne in mind, that not only in RSA, but in a few other countries, there are significant gold suppliers to the world markets. For example, on Sandong peninsula in China quite lot of gold is produced. China is a country with socialist economy. It means, that any call of Chinese Communist Party leader will be heard all over the country. For instance, China can start consuming 50% or even 100% less gold due to nationwide agitation, as it happened with iron and steel production.

A significant global gold producer is Russia. There a lot of gold is mined in many parts of the country. Australia as well remains one of the largest gold producers in the capitalist world.

Precious metal and the crisis of 2008

2008 was a particular year, absolutely everything was depreciating, and gold wasn’t an exception. But it was holding the price longer than most companies’ stocks, and even went higher at first. Investors withdrew their funds from the stock market and were investing in precious metals.

Cheap dollar – expensive gold

It often happens, that when dollar falls in price, gold increases. And when dollar goes up, the metal price drops. If we look at the chart of dollar quotes against other currencies and gold, we will see, that it is not always so.

Gold buyers

World’s largest buyer of gold is India. The country buys out a lot of gold ahead the wedding season. The celebrations begin there after the rainy season ends. Gold price often increases before the “dry” season in India. But if there is a drought or other natural disasters, one shouldn’t expect Indian jewelers to buy much gold. Gold is quite actively bought by oil producing countries (the UAE, Kuwait, Saudi Arabia), the EU, Turkey, the USA, Japan and others.

Gold sellers

Among large gold sellers are China, Australia, Russia, Peru, the RSA, Ghana and Uzbekistan. South Africa has lost its positions and dropped from the first place to the fifth one. However, the country’s gold ore stock is the largest in the world.

Trade gold, not paper

Many traders stick to this opinion. But gold price is not always attractive. All the talks that gold price is only increasing are a myth. Gold is a commodity, that can both rise and fall in price. At the times of the USSR, gold in the country rose in price, but in the rubles, as the ruble was “wooden”.

Gold was and will be free of charge

In prehistoric times gold cost nothing. Even when humans appeared, it didn’t gain the price at once. There will be times, and gold won’t cost anything. I want to believe, that it won’t be soon. But that should be remembered, and you shouldn’t let yourself careless talks that gold is universal and will have an endless demand.

Pending buy orders

Most traders set pending buy orders until gold price increases. If gold falls in price, they can buy it again, but with a smaller lot size. Such strategy is often efficient.

Lose 50, gain 100

This approach can bring positive results, but only if the trend direction is identified correctly. If you lose 50 dollars and gain, for example, 300 dollars, this will bring you a few winning and lots of losing trades. Such tactics can also be profitable. One can make a ponzi scheme, but it is harder than in the stock market.

Who shouldn’t trade gold?

Gold is no exception to the rule. Those, who like gambling, not trading, shouldn’t waste their time or money. They, who want to become rich quickly, shouldn’t expect anything (except for bankruptcy) from this market.

Gold gives you food, gold gives you drink, gold takes away everything...

In 2013, gold, despite the leading experts’ predictions, started to fall lower and lower in price. In a few years, yellow metal even touched level 1050 per troy ounce. I don’t remember any experts, saying something like “Sorry, I was mistaken”.

Trading on the news

It is hardly possible to earn on the news in any market. The gold market is no exception. The released news is useless already, and it’s impossible to predict the event. The news about an earthquake in Peru and huge damages of gold mines can raise gold price, but you will only follow the chart passively. Regularly released news can work to your advantage. For example, the information about decrease in global gold production was actively used by all exchange traders.

Physical demand for the metal

Gold is used not only in jewelry industry, coin collecting, heraldry, dentistry, but also in banking and other areas. Physical demand for the precious metal is rather high, but speculative demand is even higher. So, don’t be surprised, when you see gold chart jumping up and down.

Weekends and gaps

Gold never stops trading on the exchange, and at the weekend the price also changes. It’s no surprise, when the metal price is opened with a gap on Monday. As a rule, gaps are not large in the gold market.

Bars or Japanese candlesticks?

What kind of chart is better to use when trading gold? In Western countries bars are used more often, in Asia and post -Soviet area – Japanese candlesticks. It’s explained by mentality.

Hammer, inverted hammer and other figures in the market

Future gold price movements in the market can be predicted, using several figures of graphical analysis, particularly, daily candlesticks. Candlesticks and Japanese candlesticks combinations “hammer”, “inverted hammer”, “belt hold” often can accurately predict future.

Searching for exclusive information

Such information is hunted for in any country. In the RSA, there are a lot of traders, who establish contacts with politicians, trade union leaders, and informal leaders of miners. It won’t be a surprise, when such traders will be informed in advance about a strike in Johannesburg, the largest gold mining city, or about unemployed young people’s picket of gold producing corporation offices.

Options or CDFs

Traders answer the question on their own. CFD trading is like online-trading in the exchange market. In option trading one gets the result of a trade after a certain time. Most traders prefer CDF trading to options.

Seasonal adjustment in the market

There is some seasonality in the gold market from time to time. For example, gold price went up before the wedding season in India. But it’s not always so. Trading gold is a serious engagement and it shouldn’t be simplified.

Trend lines and moving averages

Many exchange players use trend lines and moving averages when trading this instrument. Application of other indicators and oscillators can also be useful. But it is important that traders shouldn’t be confused by the data or get lost in irrelevant information.

Gold for euro or gold for U.S. dollars?

Usually traders buy gold for dollars. But euro shouldn’t be refused also. Especially, when you expect European currency to go up or down in price. However, euro is quite cheap now, and it’s unlikely to devalue further.

What to do with gold?

Now, the precious metal has a relatively low cost. At the end of November, 2017, it cost only 1280 USD per troy ounce. Is time to buy it? Nobody knows the future. But still, I believe gold to increase in price in the long-run. However, it’s only an assumption. May be, there is a point in setting a buy pending order slightly lower than the current price, and then wait until it gets more expensive.

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