How to Trade Gold in 5 Steps

With economic uncertainty causing market volatility, many investors are looking to the yellow metal as a safe-haven asset. But getting started trading gold can be daunting for beginners. This article will help readers understand the basics of how to trade gold, so they can capitalize on new opportunities in the gold market.

Gold trading has become increasingly popular with retail investors who want to profit from fluctuations in the price of gold.

In the first half of 2020 alone, retail demand for gold rose over 10% compared to the previous year according to the World Gold Council.

Whether you want to trade gold futures, or gold stocks, invest in gold ETFs, or buy physical gold, this guide will teach you how to get started.

In 5 straightforward steps, readers will learn proven gold trading strategies to take advantage of market volatility and the unique properties that drive demand for this precious yellow metal. Expert insights will help new gold traders understand how to analyze trends in the global gold market, choose the right investment products, implement effective trading techniques, and manage risks.

If you're wondering how to start trading gold and add this asset to your investment portfolio, this is the perfect 101 guide. By the end, new traders will have the skills and knowledge to trade gold confidently and profitably.

The journey to gold trading success begins here!

Why you should trade gold?

Trading gold offers unique advantages, making it an attractive asset to investment portfolios. Here are some of the key reasons why both new and experienced traders look to the precious metal gold as a valuable market to master:

Gold prices have a negative correlation to stocks and other financial assets. This means when stock markets decline, the price of gold often rises as investors flock to it as a safe haven. Trading gold allows you to profit from uncertain economic times when stocks are volatile.
There are numerous ways to gain exposure to gold price movements. You can trade physical gold bullion, futures contracts on exchanges like COMEX, gold ETFs like SPDR Gold Shares, and more. This diversity allows you to choose trading vehicles that match your strategy.
Gold experiences frequent price swings and volatility that active traders can take advantage of. Daily fluctuations are driven by factors like central bank policy, inflation fears, geopolitics, and supply and demand dynamics.
The gold market trades nearly 24/7 across global exchanges like the London OTC market and Shanghai Gold Exchange. The continuous open market means constant opportunities to profit from gold price movements.

Trading gold provides portfolio diversification away from stocks and bonds. Its unique qualities like limited supply make gold an ideal asset to balance positions in other securities.

Surging Volume Presents New Opportunities in Gold Trading

The enormous growth in gold trading volume points to tremendous opportunities right now in this market. In 2020, average daily notional gold volumes reached a record $41.93 billion on the COMEX derivatives exchange and $58.18 billion on the London OTC market according to the World Gold Council.

Source: World Gold Council

This surge in activity means liquidity is ample, spreads are tight, and the potential to profit off of gold price swings remains high. For new and experienced traders alike, these factors make now an ideal time to get started trading this precious metal.

The rapid rise in gold demand stems from economic uncertainty prompting investors to turn to it as a safe haven asset. Yet many financial institutions and independent traders are also taking advantage of gold's price volatility and 24-hour trading on global exchanges like the Shanghai Gold Exchange.

Whether you trade gold futures, options, ETFs like SPDR Gold Shares, or physical gold, the flood of volume provides constant opportunities. This guide will teach you proven strategies to capitalize on both short and long-term gold price fluctuations. With the right skills, traders can thrive in this high-activity environment and diversify portfolios with this unique physical commodity.

How to Trade Gold: A 5 Step Process

Trading gold successfully requires following a few key steps. Here is an overview of the complete process from start to finish:

Step 1: Open a Trading Account with a Forex Broker

The first step to trading gold online is choosing a suitable broker and opening a trading account. Look for a reputable broker that allows you to trade gold and other precious metals as an underlying asset. Good brokers offer:

Multiple gold trading products,
Advanced trading platforms,
Educational resources,
And responsive customer service.

You'll need to deposit funds in your new account to start buying and selling gold. Leading Forex brokers allow you to trade gold contracts with leverage and competitive trading costs. Opening an account is quick and easy to do online in a few minutes.

Once your account is funded, you can start actively trading gold and profiting from gold spot prices in global gold markets. The right brokerage account is key to gaining access to the opportunities in online gold trading.

For recommendations on the top-rated Forex brokers for gold trading, see our list of vetted brokers here. Comparing the top providers makes it easy to find the right partner for your gold trading needs.

Step 2: Decide which Gold vehicle to trade

The next step is choosing which gold investment products you want to trade. Some of the main options include:

Gold futures contracts on exchanges like COMEX allow you to trade gold at leverage. Futures are popular with active traders who capitalize on gold price volatility.
Exchange-traded funds (ETFs) like the SPDR Gold Shares (GLD) and the iShares Gold Trust (IAU) track gold prices and can be traded like stocks. ETFs allow easy exposure to gold prices.
Stocks of gold mining companies such as those held in the VanEck Vectors Gold Miners ETF (GDX) move based on gold prices and the overall gold industry.
Gold options give you the right to buy or sell gold at a specific price on or before the expiration date. They allow leveraged directional bets or hedging.
Investing in physical gold bullion bars, coins, jewelry, and more directly exposes you to spot gold prices.

Determine if you want to focus on ETFs, futures, mining stocks, or leverage products like options to capitalize on your gold strategies. This choice dramatically impacts your experience trading gold contracts and exposure to the gold market.

Step 3: Decide the type of trader you want to be

An important step is determining what kind of trading timeframe and strategies you want to focus on. Do you want to be a:

Day trader — Day traders open and close positions within the same trading day, profiting from intraday gold price swings which require close monitoring of the market.
Swing trader — Swing traders hold positions for days to weeks, profiting from short-term gold trends. This timeframe allows for more flexibility.
Scalper — Scalpers try to profit from very small gold price changes and frequent small gains, holding trades for seconds to hours.
Trend follower — Trend followers only trade in the direction of the prevailing gold trend on higher timeframes, for larger gains.
Breakout trader — Breakout traders aim to profit from bursts in gold price volatility after consolidations and ranges.
Long-term position trader — Long-term traders have a buy-and-hold strategy for gold over months to years. This allows benefiting from major secular trends.

Decide whether you want to focus on short-term or long-term trading based on your goals, available time, and style preferences. This will shape what strategies you employ.

Step 4: Understand the Crowd Psychology

When trading gold, it's crucial to understand the differing psychology between retail traders and institutional investors. Retail "gold bugs" are primarily long-term gold bulls who buy out of the belief it is undervalued and will hedge risks like inflation or geopolitics. This steady retail buying often creates a price floor.

In contrast, institutional investors like hedge funds approach gold trading more tactically, looking to capitalize on short-term price swings but their large transactions exaggerate both rallies and declines.

Recognizing these contrasting motivations between retail and institutional traders allows you to predict price moves better. Retail bugs provide stability while institutional funds increase volatility.

Step 5: Open Your First Trade and Monitor

Once your brokerage account is funded, it's time to execute your first gold trade based on the knowledge, vehicle, trading strategy, and timeframe you defined in the previous steps. Consider starting small with a mini or micro contract to minimize risk and use stop losses to control potential downside and take profits if the price hits your upside target.

Closely track your initial trades in real time — experience is the best teacher. Review both your wins and losses to continue refining your edge and remain nimble, adjusting positions as new data arrives.

Gold trading success doesn't happen overnight so it’s normal to expect ups and downs while steadily honing your skills. Before long, you'll gain that intuitive feel for the market's rhythm.

Remember, follow the steps outlined here to steadily build expertise in this rewarding market. By following this 5-step process for how to trade gold and with the right blend of knowledge, risk management, and practice, you can thrive in gold trading.

Now go make that first trade!