Do you want money? Buy gold! … or sell

Fundamental analysis or why the volume does not go into the price

Gold assets are never traded without a preliminary assessment of the fundamental situation.

External factors that are monitored mandatory:

• dollar exchange rate - the higher it is, the cheaper the gold;
• energy prices - the more expensive, the more gold grows;
• crises, wars (including trade wars), political, economic and natural disasters;
• the macroeconomic situation in the main regions: USA, Europe, China, Japan;
• stock market dynamics.

For the market, gold is, first of all, a currency, not a commodity; therefore, the physical volume of production does not affect its speculative price.

Modern industry consumes gold in insignificant amounts. For the past 20 years, bull market fans have been actively speculating on the technological problems of the “gold” production growth. Still, in reality, the annual production volume is so small compared to the already accumulated reserves that the market does not notice it.

Most of the gold mined (in a documentary form) is immediately available for market operations. It means that the entire world stock of gold is a potential source of supply. Of the 171.5 thousand tons mined in the history of humanity (according to experts of Thomson Reuters GFMS) today, approximately 42% are in monetary and investment reserves.

It’s important to understand that almost all “new” mined gold is not consumed, but added to the vaults: private, banking, state - Central banks, IMF, bullion and coins, ETF funds, jewellery.

The “new” dollars have a more significant influence on the price of gold: if the increase in gold reserves is 2% per year, then the dollar mass is growing at a rate of more than 5%. The dynamics of investment demand of 0.25% causes ten times more volatility than a 10% change in production.

By the way, since 2009, China has not disclosed the volume of gold reserves, although it continually buys and accumulates gold in various assets. It provokes fears of market manipulation: China can make the yuan stronger than the dollar at any time by merely raising the price of gold.

In the long run, the price of gold assets is determined by the stability of the monetary system and the economy, as well as the policy of devaluation of national currencies pursued by federal regulators.

Confidence in paper currency falls when the gold that “secures” this currency is sold and declines especially strongly during a period when the currency is weakened for other reasons.

Features of technical analysis

All gold assets are considered stably volatile, but short-term speculators in the “gold market” can only be held with multi-million dollar deposits, so we focus at least on medium-term transactions.

As you understand, we do not trade in gold bars or coins, although such assets exist.

Let’s take a closer look.

The precious and most “emotional” metal is available to the ordinary trader in the form of an ordinary CFD asset, commodity futures, indices, ETFs, securities. The classic spot asset of gold by ISO 4217 has the code XAU (XAU/USD, XAU/EUR), which means the rate of one troy ounce of gold (28.5 g).

The minimum trading lot is 100 ounces, or $130-150 thousands, but due to leverage, the volume of real investments can be reduced: for 1:100 it is required $1,500, for 1:500 - only $300.

Most often, a small trader has no choice - he is forced to trade what the broker offers.

The OTC market is positioned as a round-the-clock market, but be sure to pay attention to the time of trading with your broker in gold, for example, for some, Friday “on gold” closes 1-2 hours earlier than currencies.

You can be late with closing deals at the end of the week.

London fixing LBMA sets a benchmark for market participants twice a day - this price is used for the metal supply contracts and is of the reference value for Forex. But still, it is precisely the period 10:30-15:00 in London that is considered the most liquid for gold transactions.

Features of trading strategies

We warn you right away: modern technical analysis does not offer any super indicators for gold (both spot asset and futures), unless you are a high-frequency HFT trader.

Most often, complex standard methods that take into account trading volumes are used for analysis. After the crisis of 2007-2011, there was a complete change in the dynamics of volatility, after which gold became one of the most speculative assets and almost all previous strategies had to be cancelled.

A more or less clear direction for gold can be seen on H4-D1, but so far there are no fundamental reasons for a strong direct trend, all trading methods in a wide flat will be relevant - Klondike for medium-term speculators.

The optimal time for trading gold within the day is considered the second half of the European and American sessions.

We remind you: the average daily volatility range is wide, so Stop Loss for XAU/USD should be quite large, and the ATR indicator will show these price zones best of all.

We offer several popular options.

«American Explosion»

The standard strategy for the breakdown of the range on H1. Pending Buy Stop/Sell Stop orders are placed outside the scope of 14.00-15.00 (Moscow time), Stop Loss is set at the level of the opposite order, and the minimum Take Profit is chosen equal to the size of the range. After the breakdown, transactions are held until 20.00-21.00 (Moscow time); if up to this point neither Take Profit nor Stop Loss has worked - orders are deleted.

Golden Strategy: EMA+MACD+MFI

Intraday gold trading volumes are formed by central and commercial banks, investment funds, industrial groups and other large participants.

High requirements for deposits (even on Forex) and, as a rule, small leverage lead to the fact that in the mass of transactions in gold, there are practically no small players. Hence, the price is rather accurately modelled by the movement of volume, including tick.

You will need indicators: EMA (14), MFI and MACD with standard settings for TF not lower than H1 (see Using Indicators).

On the volume indicator, groups of green lines should be formed that signal a possible change in direction. We open orders from the market when the price crosses a moving average, but pending orders can also be used. We set the stops for the line average of the last reverse max/min.

Strategy DrakeDelayStochastic

A set of indicators for this technique can be freely found on the network:

• HolyCandleTime and HolyChannel - control the trend and channel of volatility;
• HolySignal - forms a signal point (and a sound signal);
• DrakeDelayStochastic - oscillator to confirm the entry point;
• Timeframe: not lower than H1 (see Using Graphic Tools).

We enter the market when signal points appear in the areas of the HolyChannel indicator, and DrakeDelayStochastic is located outside the overbought/oversold zone. Stop Loss/Take Profit - beyond the borders of the red channel.

A few practical notes

Gold remains the same argument of power, as many centuries ago. All gold assets are speculatively responding to political and economic factors, natural disasters, terrorist attacks, crises, and manipulations by central banks.

Crisis phenomena in geopolitics and economics, especially in regions associated with the extraction or transportation of gold, lead to the fact that investors begin to move money into gold, thereby increasing demand and increasing prices. It is gold along with oil that is the most profitable, but at the same time, the most dangerous asset for both speculation and investment.