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How to Trade Gold: 3 Tips from Alan Farley

charts for trading gold; gold bars

Gold has always been regarded as one of the most precious metals in the world. For centuries, it has been used as a form of currency, a symbol of wealth, and even a way to treat illnesses. 

Today, gold has become more than just a fixed asset because it’s now used for trading, and most people see it as a smart hedge against inflation.

Looking at the historical data of XAU/USD, you’ll see that gold has held its value pretty well over the past decades compared to other instruments, which is why most expert traders have it in their portfolios. Some traders are interested in bullions or gold bards, some focus on trading gold ETFs. 

If you want to be a gold trader, mastering the strategies is important to achieve success. Alan Farley is a best-selling author who has written several books, including the highly successful “The Master Swing Trader” and “MST Toolkit”. He is also a longtime contributor to different financial publications and the author of “Mastering the Trade,” one of the longest-running online trading courses.

According to him, these are the key concepts you must know to be a successful gold trader.

  1. Understand the key economic, political, and investment factors that affect gold prices

Traders looking to trade gold should understand that gold prices are affected by various conditions, including economic, political, and investment factors.

For instance, gold has been a way of preserving one’s wealth and a symbol of financial security for centuries. In times of economic recession, many people turn to gold as an investment vehicle since it holds value. The strong demand for gold around the world helps drive and maintain its price. This is why gold is still regarded as a safe-haven asset after centuries. 

Political movements also drive gold prices up or down because of how politicians and governments can influence gold production. Today, China, Russia, South Africa, Australia, and Peru are some of the key producers of gold in the world. If there are any political conflicts in these countries, it could affect gold production, driving prices up.

Supply and demand can also impact gold prices. In times of economical crisis, people are inclined to purchase physical gold as a store of value. Gold is a tangible asset that is accepted and recognised worldwide. The incredibly high demand drives the prices even further.

Understanding these factors will guide you to make smarter trading decisions to maximise your earning potential. According to Farley, understanding technical and fundamental analyses can help you achieve your gold trading goals.

  1. Know the sentiments of other gold traders

The gold market is volatile, with many players having differing opinions about its future. 

There are three main types of buyers: 

  • Gold bugs – investors with a bullish bias
  • Hedgers – traders concerned with balancing risk in their portfolios
  • Collectors – they collect gold for long-term investments or personal interests 

Gold bugs are long-term players who are not shaken by a bearish bias. They influence liquidity in the gold market by increasing purchase transactions over time. Hedgers have diverse goals and therefore carry out transactions that can buy or sell their gold holdings. Collectors buy and sell depending on what they intend to do with it (e.g. wear it as jewellery or keep it as an investment).

Farley says knowing and understanding the players’ characteristics can help investors decide better when to buy or sell.

  1. Long-term graph analysis plays a significant role in determining gold trends.

Long-term analysis is a fundamental part of determining gold trends. It is a macro analysis, which means it studies large-scale economic and political factors that affect the price of gold. The timeframe of long-term research can range from years to even decades to predict what will happen next in the market. 

On the other hand, a short-term analysis looks at very short-term factors like news headlines, media reports, and social media activity, as well as technical aspects such as momentum indicators or sentiment indicators.

Farley suggests that traders must look at long-term gold charts to see how gold’s price will move in the future. He believes that eventually, the graph’s history will repeat itself.

Gold Prices - 100-Year Historical Chart

Image Source: macrotrends.net 

chart showing the latest Gold price

Image source: macrotrends.net

Gold is a good hedge against inflation, but it also has the potential to be a very volatile asset. The best course to trading gold is to approach it with discipline and patience, as well as by understanding what it takes to succeed in this market. 

Stay updated with key economic news and be aware of the price fluctuations and trends to make good buying and selling decisions. Learn the ropes of trading through educational courses that will teach you what to do and not do in trading assets, particularly gold.  

Remember that a good strategy on how to trade gold will help reduce your risk exposure and keep you profitable for the long term.

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