For centuries, gold has been used as a safeguard against risk and is one of the most popular products for the Australian traders. In this article, we will dive into the ways to start trading gold CFD in Australia, uncover the major factors affecting the price of gold and learn some of the technical strategies to use when speculating on the price of bullion.
Gold is one of the most highly coveted precious metals in the world. It has been used throughout history as a currency, and more recently, as a store-hold of wealth.
Indeed, up until 1971 the US Dollar was pegged to the value of gold under the Bretton Woods agreement. The Bretton Woods period extended from the mid-1940s to 1971, until US President Richard Nixon caused the collapse of the system by officially suspending the US Dollar’s convertibility to gold.
Since then, major currencies have floated against each other in what are described as free-floating exchange rates. Nevertheless, gold has remained a highly influential asset in financial markets and global economies.
A range of underlying fundamental variables influence the daily gyrations of the safe-haven associated gold price and should be constantly monitored when trading gold CFD.
As with the majority of assets traded in financial markets, demand and supply factors are hugely influential drivers of the price of gold. Its use in jewellery and various manufacturing processes can drive the price of gold higher, especially during the annual gift-giving seasons in India and China.
This is of course assuming that overall supply remains at a constant level. On the other hand, when demand is lacking the price of gold will inevitably trade lower.
Due to the fact that gold is primarily priced in US Dollars, the value of bullion can oscillate up and down based inversely on the value of the Greenback.
Of course, this is not always the case, with both the US Dollar and gold tending to perform well during periods of risk aversion. Nevertheless, a majority of the time an inverse relationship exists between both assets, as seen in the chart below.
Another major relationship to pay attention to when trading gold CFD is the yield on US 10-year Treasury notes. With gold being a non-yielding asset, a notable rise in the yield on US 10-year Treasuries can result in a notable discounting of bullion.
Conversely, strong demand for long-term bonds – which leads to a reduction in yields due to convexity – can lead to considerable gains for the price of gold.
Like a majority of heavily traded assets in financial markets, gold tends to be a favourite of technical traders due to its volatility and liquidity. This allows a variety of technical strategies and indicators to be employed to highlight potential opportunities.
A simple breakout and retest strategy, as shown below, may provide great opportunities for both long and short positions.
A failed breakout at resistance might provide a trader with a great opportunity to initiate a short position, with a stop loss located just above resistance (red arrows).
Conversely, a long position can be placed when horizontal resistance is breached, with a stop loss just below the breakout point. If the initial move is missed, a backtest (second green arrow) can provide another optimal entry point to buy.
Gold CFD trading can be an incredibly profitable strategy for investors and traders, giving them the opportunity to diversify their portfolio and hedge against inflation.
However, it also comes with distinct risks, and when appropriate risk mitigation techniques are not implemented, can lead to substantial losses.
Here are some of the benefits of trading gold CFD in Australia, and some key risks to keep in mind before you jump in and get started.
As we have seen throughout this article, various factors can impact the value of gold. From the overall risk environment seen in global markets, to the level of inflation in major developed economies.
Trading gold CFD provides traders the opportunity to hedge their portfolios from inflationary pressures and geopolitical risks and take advantage of supply and demand factors. However, the volatility that it can display should always be kept in mind.
Fast and quick moves are often seen when trading gold CFD, which can lead to outsized wins but also outsized losses.
Vantage gives you the opportunity to start trading gold CFD simply, quickly and in both USD and AUD contracts. With 20:1 leverage, you can go short or long the precious metals with very competitive spreads.
You can open your live trading account in less than five minutes with Vantage to start gold CFD trading. Vantage also provides a free demo account, which will allow you to practice various trading strategies and techniques without having to deploy your own capital. Follow the link below to find out how you can get started.
Disclaimer: Vantage Global Prime Pty Ltd is authorised and regulated by the Australian Securities & Investments Commission (ASIC) AFSL no. 428901. The information is generic and does not constitute a personal recommendation or advice. Past performance is no indication of future performance and tax laws are subject to change. We do not represent that any content is accurate/current. Trading derivatives carries the risk of losing substantially more than your investment and may not be suitable for all investors. You should consider whether you’re part of our target market by reviewing our Target Market Determination (TMD). Please read our Product Disclosure Statement (PDS), Financial Services Guide (FSG) and other legal documents and seek independent advice to ensure you fully understand the risks before you make any trading decisions. This information is under the copyright to Vantage and may not be used without its prior consent.
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