Forex traders in South Africa are incredibly interested in trading gold (especially the XAU/USD pair). Find out how to choose the best time to trade XAU/USD in South Africa if you want to start trading this precious metal or improve your results.
It’s relatively stable because gold’s global volume is relatively constant and cannot be drastically increased like paper currency. The following tips will help you maximise profits from gold and make the most of your investment.
Is gold good for day trading in South Africa?
Gold’s popularity can be explained by the high liquidity and volatility of its price, which allows it to make a quick profit from intraday trades in particular. It is also notable that South Africa produces gold at a high rate. This may also explain the interest in this commodity among the local population.
News traders rely on gold since it is vulnerable to macroeconomic events, like the US dollar. News releases during which price swings occur can lead to significant profits. Find out XAU/USD trades are most profitable during specified times of the day by reading on.
People may have been unable to start trading gold without financial innovations like CFDs and ETFs. Purchasing Gold used to be complicated since the precious metal had to be obtained as bullion, coins, or other forms of ownership.
There are several ways to trade gold online, such as the spot and futures markets, exchange-traded funds, and options. A precious metal like gold has high liquidity, much like the forex market.
Gold has a much higher daily volume than most currency pairs, excluding majors such as EURUSD, USDJPY, and GBPUSD, so it has a meagre entry cost. Speculating on the price of gold is incredibly popular because of the tight spreads and high liquidity available to traders.
The value of gold
Among the oldest forms of currency, gold has been regarded as a store of value for thousands of years ago. It is regarded as a form of wealth with limited practical uses like fiat currency. A fall in the price of fiat money, the interest it can earn, usually leads to a rise in gold’s value.
Since precious metals are physical products that exist globally, many traders see them as a store of value. Gold is also not controlled by central banks or monetary policy, which leads to its intrinsic value being unaffected by economic conditions, unlike currencies, which could become almost worthless in certain circumstances.
How do you trade gold for beginners?
Those who intend to invest in gold frequently or even day trade gold will need different trading strategies and financial instruments than those who invest in gold. Check out the next section if you want to know how to invest in gold and trade gold.
Different ways to invest in gold
Here are several different ways to invest in gold.
1. Spot Gold CFDs
The process of trading spot gold is similar to trading forex because it is done in pairs. Historically, gold contracts are denominated in US dollars, so spot gold is typically paired with the US dollar. Gold is represented by the chemical symbol XAU, which forms XAU/USD. When a trader buys gold and sells the dollar while going long on gold CFDs, they simultaneously purchase gold and sell the dollar. Likewise, a trader sells gold and buys the dollar when going short.
2. Gold Futures
A gold futures contract is an agreement between buyers and sellers at a specific price on a specific date. Technically, gold futures traders can use them to acquire physical gold, but they rarely do so. They usually settle for cash instead of or sell the contracts before expiration.
The benchmark gold price is the COMEX price in Chicago, but the Shanghai Gold Exchange has been gaining ground. One hundred ounces of gold represents one gold futures contract.
3. Gold mining stocks
The gold price is highly correlated with gold stocks, typically more volatile than gold. In the same way that gold prices move by 5%, gold stocks might move in the same direction by 10% or more. In South Africa, you can find many of the best-known players in the gold industry, including Barrick Gold, Franco Nevada, and Newmont Mining.
4. Gold ETFs
The price movement of a gold ETF can either be tracked by the actual commodity itself (Gold) or by the price movement of gold mining stocks. With an ETF, you can diversify your portfolio to more than one stock. ETFs with gold tickers include GLD, IAU, & SGOL. You can also buy mini Gold ETFs.
What affects the price of gold?
While there is no central government that controls the price of gold, a range of factors contribute to its movements.
1. Supply and demand for gold
Like other valuable assets, supply and demand primarily dictate gold’s price.
Because there is a low supply of gold when demand is high, the price of gold will increase because of the scarcity of precious metals. Price increases will result if gold supplies increase and demand remains low.
2. Gold investing with inflation and deflation
Inflation is usually a sign of an expanding economy, and central banks will issue more money when the economy grows. Consequently, the currency will devalue as more notes are issued.
A rise in gold’s price occurs due to investors flocking to the precious metal during inflationary periods, which keeps its value. On the other hand, deflation leads to gold’s price falling as investors move to other assets.
3. Gold vs the US Dollar
The price of gold is heavily dependent on the dollar’s performance because gold is denominated in dollars.
A decrease in the dollar’s price leads to a rise in gold’s price and vice versa. However, this relationship is inverse in normal circumstances. It happens because traders look elsewhere for investments when the dollar performs poorly. This increase in demand drives up the price of gold.
4. Geopolitics impact on gold
The precious metal has long been seen as a haven investment, which explains why it performs well in times of geopolitical turmoil. When wars, trade wars, disruptive national elections, and other significant events take place, investors look for a safe store of value, which leads to an increase in gold prices.
How do you trade gold successfully?
The key to successful gold trading is to use the right financial instrument, ranging from spot gold to gold stocks – and then decide how often you will trade. How can I determine when to trade gold? This is a frequently asked question. When gold futures contracts are most active in Chicago, US trading hours are when there is the most volatility. No matter how long you plan to trade gold, here are the five most important factors to consider:
- Has market sentiment changed from risk-on to risk-off?
- What is the performance of the USD?
- Does gold demand physically increase or decrease?
- Is there a shortage of precious metals? Specifically, how much of it is mined?
- Analyse gold price trends using technical analysis
Using these questions and technical indicators together, a trader can determine the overall trend in the market and place their trade according to it. It is also crucial to develop a risk management strategy, which includes stopping loss and taking profit levels, to guard against unexpected volatility in the gold market.
Tips for trading gold (XAU/USD)
Consider the following tips before considering trading gold in the Forex market.
1. By targeting previous highs and lows, you can simplify your analysis
XAU/USD tends to trade within a range, making it easy to identify, buy and sell opportunities within the previous highs and lows of the trading pair. For instance, when gold prices are trending upwards, traders can target a previous high as their selling price, and vice versa.
The price of gold is likely to rise or fall over time because gold is a relatively stable asset. It’s important to note that this isn’t recommended for day traders. It can take time to hit these targets, and range-bound strategies offer fewer quick profit opportunities than momentum strategies.
Nevertheless, it’s a relatively risk-free strategy designed to generate some profit from reliable XAU/USD price movements.
2. Consider geopolitical implications on currencies
Gold can provide stability and protect your liquid assets when political or economic uncertainty threatens currency prices.
XAU/USD can be a reliable and risk-reducing way to protect your assets from unpredictable developments in other forex markets. Its strong correlation with the U.S.USUS dollar and other stable currencies such as the Japanese yen makes it an ideal strategy for protecting your assets.
3. Use the symmetrical triangle for analysis
Symmetrical triangles are simple chart patterns that indicate a period of consolidation before a price breakout occurs.
The symmetry of triangles is formed by the convergence of two trend lines progressing in opposite directions but at a similar slope. As consolidation occurs, the price movement on the pair becomes tighter, creating potential trading opportunities for a breakout.
Trades are typically based on symmetrical triangle patterns and other technical indicators, such as liquidity or the relative strength index. The asymmetrical triangles can add further confirmation to other indicators of a possible price breakout, thus increasing confidence in placing an order on XAU/USD.
When the descending trend line converges with the ascending trend line, a stop-loss order can be placed under it, and a sell order issued if the price of XAU/USD successfully breaks out.
4. Track industrial, and commercial demand for gold
The fixed global supply of gold can affect gold prices due to increased market demand. There are multiple forms of demand for gold. A material’s role in consumer projects may lead to specific industries increasing their acquisitions of gold. Various products and solutions, for example, are made from gold in the medical and tech industries.
Gold jewellery prices are also affected by consumer demand. Take global demand in foreign markets where gold jewellery is considered an investment and a luxury item.
5. Monitor central bank buying
Central banks often buy gold as a hedge when certain currencies are expected to fluctuate. Recent headlines, for example, indicate China and Russia have invested heavily in gold in response to concerns about the future values of major global currencies such as the U.S.USUS dollar and euro.
The fact that central banks buy gold in large quantities tells forex traders two things. Traders may be compelled to move a more significant portion of their investments into less volatile funds because governments are betting on significant currency values falling.
The price of gold typically increases after central banks increase their purchasing, at least in the short run. You may be able to make a quick profit if gold prices start to trend upward.
Best time to trade gold in South Africa
XAU/USD can be traded round-the-clock, Monday through Friday, so you can trade it whenever you want during the week. Despite this, certain times of the day are better for gold transactions. During this time, prominent market players trade the currency, ensuring high liquidity in the market.
The time of day when the American trading session begins coincides with this time. There is less activity during the European trading session and even less during the Asian session.
The best way to trade gold in South Africa
When the US currency weakens, gold’s price rises because the US currency is negatively correlated with gold. Following are a few recommendations you can follow to take advantage of XAU/USD price fluctuations:
1. Monitor the supply and demand of the precious metal
According to the supply/demand ratio, gold prices fluctuate. It is possible to get a sense of market developments from the stock price trends of mining companies.
2. Make the most of crucial macroeconomic news
A simple rule is that anything that affects the dollar price (FOMC meetings, Fed chairman’s speeches, nonfarm payrolls) will affect XAU/USD prices in the opposite manner (inverse correlation).
3. Don’t neglect technical analysis
Your charts will help you determine market trends and volatility levels and guide your trade entry and exit decisions. It is crucial to consider these factors before deciding to trade.
4. Follow up on investor sentiment
In COT reports, you can find out the situation with the non-commercial positioning of gold by tracking the positions held by prominent market players. A high liquidity market is an excellent time to trade.
During the North American session (2:00 pm -10:30 pm), the volume of gold trades is increasing. UAX/USD trading is considered most favourable in South Africa.
During the day, gold’s price fluctuates, just like any other trading instrument. The most active time for trading XAU/USD occurs between 2:00 pm and 10:00 pm eastern time. These hours offer the best chances for making high-profit trades due to the high trading volume.
At this time of day, there are also several critical fundamental releases. Changes in monetary policy nonfarm payrolls are likely to trigger price changes. Furthermore, traders should closely follow the political and economic conditions in gold-producing countries and commercial and industrial demand for the commodity.
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Heinrich is a forex and CFD enthusiast with a passion for writing good informative quality content. He strives to showcase the best forex brokers in Africa. Join him on his Journey!
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