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How To Start Day Trading in Gold |Best Gold Trading Strategy for 20229 min read

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Gold has long been praised for being a stable and worthwhile long-term investment option. This is because historical data shows that the gold price is very resistant to inflation and global economic pressures.

However, when we look closer at the price of gold on a daily chart, we will notice that its price, and that of other precious metals, fluctuates many times throughout the day.

Far from being a bad thing, these fluctuations actually provide an opportunity for traders to make some money from day trading gold.

By the time you finish reading this article, you will have learned the following key aspects of trading gold:

  • Gold Futures Contracts allow you to trade gold online without holding physical gold

  • Day trading gold requires speculation on the short-term price movements of gold

  • To trade gold ETFs and funds in the US, you will need at least $25,000 as a minimum account balance

  • A good strategy is essential to become a successful day trader

Is It a Good Idea to Trade Gold?

Gold trading refers to buying and selling gold and trying to make profitable trades by predicting how the price will change over a short period.

There is certainly a lot of potential to make great returns when you trade gold, which means that it can be a great idea.

However, there are also considerable risks of losing all your money by using a poor day trading strategy.

That is why the best thing to do is develop a strategy that works well for you and stick with it no matter how the market behaves.

The gold price will change many times during the day. If you can be ready when it does, gold trading will be very profitable.

Can You Actually Hold Physical Gold?

Holding physical gold

Unlike buying gold directly from precious metal dealers, when you trade gold you never actually get to take possession of the gold. Instead, what you are simply doing is making trades based on the current gold prices.

The entire process is completed online through your chosen brokerage account. The only feedback the investor will receive is the profits and losses of the online account.

When you are ready to withdraw your funds, you can request the broker to transfer your funds to your bank account.

Trading in Gold vs. Investing in Gold

The main difference between trading gold and investing in gold has to do with the time from the moment you buy the gold until you sell it.

When trading gold, an investor can make multiple purchases and sales during one day, making and losing money according to how well they can speculate.

On the other hand, gold investments will be held for a longer time, even for years, before the investor chooses to cash out.

Looking at the above facts, we can see that gold trading is a lot more fast-paced and relies upon the reflex reactions and market sentiment of investors.

Gold investment, however, relies on historical data that shows that gold prices will continue to rise over time.

Trading Gold Futures

A gold Futures Contract is an agreement to buy or sell gold at a future date. This allows traders to buy and sell gold Futures from each other many times during the day.

At the end of the day, the trader will close their account and see whether they have made a profit or a loss.

Prices on the gold Futures exchange change in increments of $0.10. These price changes are called ticks and gold cannot change by any amount less than that.

The number of ticks that the gold price moves away from your purchase price determines your profit should you choose to sell at that time.

There are two types of gold Futures contracts that you can choose based on your trading strategy, which are:

  • A standard contract, which moves in ticks of $10 because it is based on 100 ounces of gold

  • A micro contract, which moves in ticks of $1 because it is based on gold not exceeding 10 ounces

Each Futures contract broker has a particular minimum account balance they require before you can open an account on their platform.

This amount is called an intra-day margin and has to be available each morning in your account before you start trading gold for the day.

These rules are applicable when you close your positions at the end of each day. If you leave your position overnight, you will be subject to maintenance margin requirements which need a larger amount in your account.

Day Trading Gold Using Stocks and Exchange Traded Funds (ETFs)

Stock trading

You can trade gold through a stock trading account on a stock exchange, such as SPDR Gold Trust (GLD), or you can buy a gold ETF. The trust has to have physical bullion held in reserve so that its exchange can reflect the price of gold.

Gold stocks and gold ETFs are usually one-tenth the actual price of gold on the gold market, meaning when Futures are trading at $1oo, gold ETFs and stocks will be trading at $10.

These gold exchange-traded funds and stocks are also normally traded in round lots of 100-share blocks, meaning when the price of gold moves, your account will reflect a 100-fold shift.

The minimum required account balance that gold traders need to have to start day trading gold in the US is $25,000. Your trading strategy will determine whether you want to go beyond that minimum required balance.

Factors Driving Gold Prices

Many factors in the financial markets are responsible for affecting the price of gold daily. If day traders are going to make trading gold profitable, they need to know the following:

  • Inflation and Interest Rates

Gold bullion has an inverse relationship with fiat currency, such as the US dollar. This means at times when the dollar is battling against rising interest rates and inflation, the price of gold will actually improve regardless of the bear or bull markets.

  • Physical and Investment Demand

The demand for gold bullion comes from many different sectors, namely:

  • Jewelry in times of economic stability when people are more likely to buy it as a gift

  • Huge demand from countries like China and India where jewelry is gifted during weddings and festivals

  • In electronics where gold is needed in the manufacture of specialized components

If supply and demand are not able to complement each other, the gold price will be affected.

  • Mining Production

Gold mining companies usually have specific targets for how much gold they can mine. However, at times, production may be disrupted due to natural causes or the industrial strike actions of gold miners.

When this happens, not only will gold mining stocks suffer, but day traders will also experience the impact on the trading platform in the form of a sudden increase in the price of gold.

How to Day Trade Gold

Whether you intend on trading gold CFDs, gold miner ETFs, Futures, or stocks the process is more or less the same depending on the broker you are working with.

The following steps are what is needed when day trading gold:

  • Open Your Trading Account

Make sure you choose a reputable gold trading broker to work with so that you can rest assured that your funds and personal information are in a secure platform. You will need to provide your ID and proof of address for account verification.

  • Develop a Trading Strategy

This is one of the most important things you need to do if your gold trades are going to be profitable. Your strategy needs to have a plan for how you will handle extreme price fluctuations, the specific gold markets you will target, and the average daily trading volume you hope to cover.

  • Choose a Gold Instrument to Trade

Unlike buying physical gold coins, trading requires using a specific instrument available on different gold markets to speculate on price movements. Examples of these gold instruments include Futures, gold CDFs or gold Options.

  • Open Your First Position

Opening your first position means entering the gold markets and choosing a short or long trade. You can also include stop-loss and take-profit orders to secure your account.

  • Monitor and Close Your First Position

Once your account is up and running, you need to closely monitor the price movement throughout the day, making decisions on when to enter or exit a market. You can use email alerts from trading apps to keep an eye out for gold trading opportunities.

When your prediction has been accurate and you have made a profit, or you feel like the market will continue to move against you, it is time to close your position and start the entire process again.

Best Gold Trading Strategies

Some of the best gold trading strategies are based on the following techniques used by many experienced and successful gold traders:

Fundamental Analysis

The rarity of gold is what gives it so much value over other metals that actually have a lot more intrinsic uses. Using a fundamental analysis approach will allow you to predict how the price of gold will be affected based on economic data releases.

This requires closely monitoring the entire gold market and trying to predict the price movement based on historical data and various activities in the global markets. Gold price analysts traditionally predict that the price of gold will rise under the following conditions:

  • Negative real estate interest rates

  • Falling U.S. Dollar

  • Economic crisis/instability

  • High inflation

Correlations of Gold

One of the most important factors to keep an eye out for is the correlation between the gold markets and the value of the US dollar.

These two never move in the same direction. If you are looking for an indicator that is accurate enough to help you make the spot decision, the US dollar value is your best bet.

As soon as you see the value of the dollar dropping, be prepared for the value of gold to increase, and vice versa.

Trading Gold With Seasonality

The concept of seasonal trading does not fit well with gold or any other precious metal whose mining activities are not affected by the weather. However, data does show that some months of the year do experience an increase in gold trading, so it is something you can look at.

Trading Gold With Technical Analysis

Technical analysis requires you to focus on the historical price movement of gold without taking into consideration any other global factors. If the data supports making a certain trade then you do it.

Tips and Tricks for Day Trading Gold

If you want to be a successful day trader, here are some tips that could help you:

  • Use a demo account to improve your trading strategy in a safe haven

  • Keep an eye out for newsletters and blogs that can help you formulate a better strategy

  • Read all the educational material provided by online brokers

  • Keep up to date with government actions that may affect the price of gold

Conclusion

There are many gold trading opportunities that a day trader can exploit and walk away with significant profits. However, the price of gold fluctuates just like other commodities, so the risk of losing money is very real. The different strategies outlined in this article can help you navigate the intricacies of trading gold.

About 

Edwin Cannon has spent his entire career in the financial industry and specializes in alternative investments and surviving marketing turbulence. He started My Retirement Paycheck to help educate consumers about retirement investment options that aren't typically introduced by advisors.