Have you ever given a gold ring to your friend as a token of your true love? Gold has been the most precious metal from the dawn of civilization. It is still considered to be the ultimate currency and the ultimate store of value in times of political uncertainity. For the last ten years, the gold market is in a secular uptrend with the spot prices having recently breached the historical barrier of $1,200 per troy ounce. After that there was a retracement and the prices did come down to around $1,100 per ounce but this uptrend is expected to continue for sometime.
Forex trading is considered to be a recession proof business as there is neither a bull market nor a bear market in currencies. Currency prices are always quoted relative to one anther and currencies are traded in pairs. What this means is that if one currency goes up the other goes down. It is being said that many millionaires will be made in the currency markets. Forex trading is the hottest market right now after the recent stock market crash. Many small investors lost their lifetime saving in the stock market crash of 2008. Investors have turned towards forex in droves.
Many people don’t know this that you can trade gold on forex too. Many forex broker platforms that you use to trade forex, allow trading of gold and silver against the US Dollar (USD) from the same platform. Both these precious metals have high demand in the industrial sector and as the global economy recovers from the recession, the prices of gold and silver are expected to skyrockets as industrial production picks up and consumers start buying again. When you trade a currency pair, you go long on one currency and short on the other. In other words, you simply buy one and sell the other.
There are many currency pairs that you can trade like the GBPUSD, EURUSD, UADUSD, NZDUSD, JPYUSD. Spot trading gold on forex is almost similar with gold replacing one currency in the pair and the other currency is always USD. In case of spot gold trading on forex, you trade one ounce of gold in the spot market againt US Dollar (USD). So just like when you trade a currency pair, when you trade gold on forex, you are taking either a long or a short position in gold against USD.
So, in spot gold trading on forex, you are trading one troy ounce of gold against USD. Interestingly the symbol for this is also XAUUSD with XAU representing one ounce of gold. Now, suppoe the price quote in the spot market is 1100 XAUUSD. What this means is that one troy ounce of gold in the spot market right now is equal to $1,100 USD.
Just like anyother financial market, the price quote in the gold spot market has got a bid/ask spread. So if the price quote is 1110/1115, it means that you can sell one troy ounce of gold in the spot market for $1,110 and buy one troy ounce of gold at $1,115 meaning you will have to pay a spread of $5 per troy ounce when trading in gold in the spot market.Spot gold trading on forex is a fast moving market and the spread keeps on changing throughout the day.
Spot gold market is a fast moving market and the price quotes keep on changing. So, suppose just after 60 minutes, you find the quote to be 1120/1126. You see a profit and decide to get out selling at $11,200 making a profit of $30. Now if you had used leverage, you would have needed a much lower initial investment to make a profit of $30 in just 60 minutes. Now a standard lot in currency trading is equal to $100,000. But in case of gold on forex, a standard lot is equal to 10 troy ounces of gold. So, if you find the price quote to be 1112/1117 and you are interested in going long. In that case you will have to buy 1 lot of gold that is equal to $11,170.
Gold is also know as anti dollar. What this means is that their is an inverse correlation between gold and USD. This inverse relationship can help you hedge your positions in other currency pairs.
Mr. Ahmad Hassam has done Masters from Harvard University. Get this Forex Swing Trading Forex-4 Pack Training Kit FREE! Download this 1 Minute Forex Trading System FREE.
Related Blogs