Whether used to protect portfolios during economic challenges or to profit from market swings, gold continues to draw the attention of traders. In this article, we explore why gold CFD trading remains a favored option.
Unraveling the Gold Market
It’s essential to acknowledge that gold CFDs, despite being traded alongside currencies, exhibit distinct characteristics. Compare two charts: one tracking the XAU/USD pair over nearly 14 years and another showcasing the relatively stable EUR/USD pair over the same period. The contrast is stark.
XAU/USD (W1)
EUR/USD (W1)
The first chart clearly illustrates smaller price swings and a more consistent long-term direction. To underscore these disparities, let’s examine a shorter timeframe (H4).
XAU/USD (H4)
EUR/USD (H4)
Peculiarities of Trading Gold CFDs
Gold has historically demonstrated a robust positive correlation with risk-off sentiment, rendering it a favored safe-haven asset during market turmoil. Like the US dollar, it tends to appreciate when investors seek refuge from economic or geopolitical uncertainties.
While many traders maintain a long-term bullish perspective on gold, the metal’s volatility and suitability for leverage trading also resonate with a diverse array of trading strategies and timeframes.
Scalping
Gold’s exceptional liquidity and volatile nature make the XAU/USD pair a prime target for scalpers. The metal’s pronounced reactions to news and political events also resonate with traders who prefer fundamental analysis. Scalpers benefit from low spreads, which allow them to capitalize on short-term price fluctuations.
Mid- and Long-Term Gold Trading Strategies
There are two primary approaches to trading gold over extended periods: technical analysis and fundamental analysis. Technical analysts often employ indicators like the Average True Range (ATR) to assess volatility and identify trends.
Fundamental analysts, on the other hand, focus on broader economic factors. Historically, gold prices have tended to surge during times of global crisis. Let’s examine two charts:
XAU/USD following March 15, 2020
XAU/USD following February 24, 2024
While the second chart confirms the correlation between crises and gold price increases, it also underscores potential challenges. The initial price surge, though sharp, was relatively short-lived. This is because gold is often used as a safe-haven asset for long-term investment.
In simpler terms, large investors turn to gold when they lose confidence in other assets. Another popular choice for such investments is the US dollar. Let’s consider the EUR/USD pair’s behavior during the same period:
EUR/USD following February 24, 2024
You’ll notice that the dollar also appreciated during this period. Since gold is priced in US dollars (XAU/USD), a strengthening dollar can offset gold’s price gains, posing a potential challenge for traders.
Comparing Gold to Other Instruments
When choosing a trading instrument, it’s essential to consider your investment goals. Comparing gold with other assets like currencies, stocks, and commodities can provide valuable insights. Gold tends to behave more predictably during times of market uncertainty.
However, during periods of economic stability, gold prices may experience limited movement, making it less appealing for short-term traders.
Trading Gold at AMarkets
At AMarkets, traders benefit from a leverage of up to 1:3000 on gold trades, allowing you to potentially increase your returns with a smaller initial investment.
Conclusion
Although CFD trading carries risks, gold is generally regarded as a more stable asset compared to other instruments. Unlike commodities such as oil, which are significantly affected by supply and demand disruptions from organizations like OPEC+, gold is not as heavily influenced by external factors.
This lowers the chances of sudden price swings due to geopolitical events or sanctions. However, despite its stability, gold still experiences periods of price volatility, providing traders with opportunities. This blend of stability and volatility makes gold CFDs appealing to traders of all levels of experience.
