Day Trading Gold: Overview, How to Start & Tips

Day trading gold is one way for retail traders to take advantage of opportunities in the financial markets. Here, we look at what day trading gold involves, several gold instruments available, and how to get started on trading them. Also included are some valuable tips and tricks to keep in mind while trading gold.

Key Points

• Day trading gold involves buying and selling gold several times in a trading day to take advantage of short-term price movements.
• Gold can be traded using contract for differences (CFDs), futures, exchange traded funds (ETFs), forex, bullion and gold certificates.
• Some factors that affect the gold markets are infaltion, central banks, and gold supply.

An Overview of Day Trading Gold: What It Involves

Day trading gold involves buying and selling gold several times in a trading day to take advantage of short-term price movements. ^[1]

As a day trader, the primary objective is not to acquire physical gold. Instead, you prefer to trade various gold market instruments for trading opportunities. Any benefit or loss you make directly results from your market predictions and gold price movements.

You rely on volatility and price fluctuations in the gold markets to speculate and execute short-term trades. Some of these factors include upcoming news and trends.

Ways To Day Trade Gold

There are plenty of ways to access gold in the financial markets. Let’s take a look at some instruments you can access:

1. Gold Contract for Differences (CFDs)

   1. Gold CFDs are a way to trade gold, mainly with limited capital. With CFDs, you can trade gold on margin and enjoy greater from the leverage your broker provides you.
   2. With leverage, you have a double-edged sword. Without a proper strategy, you could lose more than just your capital. On the other hand, you can now enjoy the potential for greater trading opportunities from accurate price predictions.
   3. Here are some quick advantages of gold CFDs:
      • Access to gold markets at a lower cost
      • You don’t own the underlying asset
      • You don’t need to pay the total value of gold before trading the CFD 
      • You can trade gold in both the short-term and long-term
      • Access to leverage 

2. Gold Futures

   1. Gold futures are regulated futures contracts that oblige you to buy or sell a precise amount of gold at a fixed price on a future date.
   2. Most often, gold futures contracts help gold businesses and traders hedge their positions against losses if prices change unfavourably in the future. Additionally, as a day trader, gold futures are an excellent instrument for trading gold today because gold holds intrinsic value, and many investors use it as a strategy to combat inflation.
   3. Like CFD markets, futures markets possess high liquidity, allowing you to maximise opportunities in nearly any market condition.

3. Gold ETFs

   1. Gold ETFs are derivatives that hold several assets in a single basket. Unlike most trading tools, ETFs diversify your risk of losing everything at once.
   2. Buying a gold ETF allows you to participate in the gold markets without owning the actual precious metal.

4. Gold Trading in Forex (XAU/USD)

   1. Gold (XAU) trading in forex is a standard that measures the price of an ounce of gold against the US dollar. Gold FX gives you exposure to gold through the forex market. Since changes in USD values affect the value of gold, trading gold in forex is a great way to lower your risk during market crashes.
   2. Volatility, supply and demand, and liquidity are factors to consider before trading gold in forex.
   3. Click here to read more about gold trading tips.

5. Gold Bullion

   1. Gold bullion is physical gold kept in bars, coins, or ingots. Bullion can serve as legal tender or a store of value by governments and other institutions. As an investor, you can own bullion through brokers that operate in the bullion markets.
   2. As a physical asset, most investors see bullion as a perfect store of value.^[2]

6. Gold Certificates

   1. Gold certificates are paper notes that equate the dollar value of the quantity of gold you hold in the National US Treasury reserves. The significant difference between gold certificates and other trading tools is that you own gold as the asset.
   2. The disadvantage of gold certificates is that they can go from valuable to worthless fast, depending on the company’s financial status. For instance, If your broker company goes bankrupt, any gold certificates they issued automatically become worthless.

What Makes Gold Move?

Several factors affect the gold markets and how prices move:

1. Inflation

Because of its inverse relationship with the US dollar, inflation usually drives up gold prices. Also, an increase in demand for gold will drive up its prices, regardless of bull or bear markets.[3]

2. Supply and Demand

Even though more gold comes into the market through mining, it doesn’t cause gold prices to plummet. Most times, other users take it and use it as a store of value. That means its supply reduces, and prices remain high.

3. Central Banks

Central banks are some of the largest buyers of gold. When the markets boom, they’ll still buy more gold, keeping the markets stable and causing gold prices to fall.

How To Day Trade Gold?

You can get started day trading gold in a few simple steps. Here’s how to go about that:

1. Open Your Trading Account

   1. To start day trading gold, open a trading account with a broker. Your broker will ask for a copy of your ID and proof of address to verify your account. Once approved, you gain instant access to the markets, including instruments like Gold CFDs, ETFs, and Futures that you can trade immediately.
   2. Before placing your first trade, add funds to your trading account by connecting it to your bank account, credit, or debit card.

2. Develop a Trading Strategy

   1. You can enter and exit markets with a gold trading strategy while efficiently managing your capital. Strategies help you take advantage of market opportunities while reducing your risk of losses. Incorporating technical analysis and risk management tools such as stop loss orders are essential. Moreover, having a well-planned day trading strategy is crucial for success in trading.

3. Choose A Gold Instrument to Trade

   1. According to your trading strategy, pick a gold instrument to trade. It could be Gold CFDs, Futures, Options, or Gold FX. According to your risk management strategies, you can trade as many markets as you want and get into as many positions as you’d like.
   2. The only markets unavailable this way would be gold bullion and certificates. Besides these, all other gold instruments are available without actual ownership of the precious metal.

4. Open Your First Position

   1. Open your first gold position in your chosen market from your brokerage account. Depending on prevailing market conditions and your strategy, you can go long or short. You can place stop losses and take profit orders to manage your capital efficiently.

5. Monitor And Close Your First Position

   1. You can now monitor all your open gold positions throughout your trading day across weeks or months. To do so, log in to your trading account and monitor the performance of your portfolio. You can also watch it via email, SMS, and app alerts.
   2. Once you’ve made an accurate prediction, close your open position and take your profits, even though this can work vice versa and cause losses if the market moves against you. Your broker will take out any fees or charges directly from your earnings.

Tips and Tricks for Day Trading Gold

Here are some top tips and tricks that can help you day trade gold: 

1. Open a Demo Account

   1. Most brokers provide you with a demo account to train yourself and learn market strategies that work. Demo accounts prepare you to trade with real money. Also, they allow you to master indicators and all other technical tools and resources.^[4]

2. Blogs & Newsletters

   1. Learn new things and read helpful notes on newsletters and blogs. You can also join day trading discussion forums where experts give their views and suggestions on better ways to trade gold.
   2. Visit the Vantage Academy to read all our free articles covering various aspects of trading, including strategies, market analysis, and tips for success.

3. Academic

   1. As a new trader, you can also learn how to trade from many online courses and trading workshops. You can also download articles and tutorials from skillful traders to learn more from their personal and professional experiences.

4. Government Treasury Actions

   1. The US National Treasury plays a crucial role in determining the movement of gold prices. They also set bank rates that determine the pricing of the gold in the market.

5. Current News Updates

   1. Day traders in gold markets keep in touch with the latest news which can maximise the small opportunities in price movements in gold prices or demand. 

Conclusion

Armed with the knowledge and tips from this article, you are now better prepared to start trading gold CFDs. You can start by opening a demo or live account from Vantage today.

With Vantage, you can also explore a variety of stock CFDs to diversify your portfolio. Start trading US Stocks CFDs with Vantage today and enjoy $0 commissions!

References