If you are looking into gold trading as a form of revenue or purely for investment purposes there are certain factors you need to consider beforehand. First and foremost, you will need to decide what type of gold you want to trade, whether bullion or equity. Each of these can then be broken down into either bars or coins and direct stock or mutual fund investment.
The next factor you need to focus on is the type of trading you are interested in, namely day trading, swing or position trading. In day trading, you will be buying and selling your gold the same day without holding on to if for more than 24 hours to avoid overnight interest costs.
Swing trading refers to traders who hold on to their commodities for a medium time frame while position trading can even span years. It depends on what your end goals are with your gold trading, whether you want to simple create a revenue for the short term or to make the best gold investment as a hedge for you assets for the long term.
Gold Trading: Bullion
If you have decided to trade gold bullion then you need to make sure to use a gold certificated supplier and make sure you are buying approved bullion market gold bars. Gold trading and prices can swing from the excitement of watching paint dry to a volatility that can leave you breathless, therefore it is not advisable to start trading if you are a beginner.
When gold trading it is important to remember that gold is heavily affected by fundamentals and a purely technical approach may not be the best tactic to adopt. At the very least, avoid trading when news announcements are being made regarding indicators and forecasts as trading volatility tends to spike a few moments before and throughout the announcement.
The problem is that it doesn’t always go in the direction you expect and even if you believe you can earn a lot by trading the news remember that you can just as easily lose a lot.
Gold Trading: Stocks
If you have opted to go into gold trading via an investment in a mutual fund or a gold mining company, then you will have to conduct an in-depth analysis of the company you intend to invest in.
You will want to study their annual reports, management team as well as the geological surveys so you can get a rough idea of how much ore the company still has access to. You should also look at the trading charts for the company’s stocks to see the evolution of the price. This will be an invaluable tool to help you determine if the price is right for you to invest.
If you find that the shares are near a historical resistance level then you may consider holding off on your investment until the price begins to retrace. If there are no major fundamentals affecting the share prices then you can consider the retracement a minor correction and buy when the price reverses again.
One way to determine if price is reversing is with Fibonacci levels as they have proven historically to be accurate. Therefore if the price tests a Fibonacci level and does not break through it is likely that a reversal is taking place.
Gold trading is essentially like trading any other commodity except that price reacts inversely proportional to market sentiment, In other words, the harsher the economic climate the more gold trading takes place and the higher the price.
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