Trading Gold at Markets World

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Major global trading hubs

The landscape for wholesale gold trading is quite complex and constantly evolving. The three most important gold trading centres are the London OTC market, the US futures market and the Shanghai Gold Exchange (SGE). These markets comprise more than 90% of global trading volumes and are complemented by smaller secondary market centres around the world (both OTC and exchange-traded).

Daily notional gold volumes in US-dollar billions

*Based on 2020 average daily volumes.
†Loco London OTC daily volumes are estimates based on clearing statistics published by the LBMA: http://www.lbma.org.uk/clearing-statistics. These figures are net transactions. To estimate gross volumes we use two multipliers: 5 for a low estimated volume (based on market inight) and 10 for a high estimated volume (based on a turnover survey published by the LBMA in 2020.)
‡Includes physical and futures contracts.
^Includes: Dubai Gold & Commodities Exchange, ICE Futures, US Metals, Borsa Istanbul, Bursa Malaysia, Moscow Exchange – RTSX, Tokyo Commodity Exchange.
**Based on combined worlwide daily volumes. A list of all physical gold-backed ETFs (and similar products) included in this calculation is available on: https://www.gold.org/data/gold-etf-holdings
World Gold Council, LBMA, SGE, Bloomberg

Overview of market centres

The London OTC market

The London OTC market has historically been the centre of the gold trade and today comprises approximately 70% of global notional trading volume per our estimates. The London market attracts participants from all around the world and sets the twice daily global reference benchmark for gold, the LBMA Gold Price. Uniquely the market in London trades 400 ounce bars ‘Good Delivery’ bars which are stored in the member vaults of the London Precious Metals Clearing Limited (LPMCL) and the Bank of England. London’s unique vaulting infrastructure with its strictly enforced chain of custody, as well as the sizeable stocks of gold that reside within it, contribute to London often being referred to as the ‘terminal market’. The London market also enjoys a time zone advantage, bridging Asian and US trading hours, and benefits from its status as a leading global financial services hub.

Notwithstanding the London market’s pre-eminence, it has been losing relative share of global trading volumes. In 2020 banks operating in the market stopped submitting forward offered rates (GOFO rates) which were used to establish the market’s forward curve, one of several symptoms of a market that has become increasingly fragmented. The World Gold Council’s initiative to partner with a consortium of leading financial players and the London Metal Exchange to introduce LMEprecious is a direct response to these pressures. This suite of exchange-traded contracts seeks to modernise and introduce efficiencies to the heart of the gold trading market.

The US futures market (COMEX)

Despite London’s leading role in the physical market, the COMEX derivatives exchange operated by CME Group has become an increasingly important venue in driving price discovery. Trading activity on COMEX is primarily concentrated on the ‘active month’ (nearest dated) contract which acts as a proxy for the spot price. Only a small number of contracts physically settle into delivery of bars into COMEX vaults but the market is nonetheless tightly linked to physical markets through a very active Exchange for Physical (EFP) market. Notably, a steadily increasing share of COMEX volume is transacted during Asian market hours reflecting the exchange’s success of tapping into Asian market growth.

The Chinese market (SGE & SHFE)

The largest purely physical spot exchange in the world is the Shanghai Gold Exchange. Established in 2002 under close oversight of the People’s Bank of China, SGE has enjoyed a rapid rise to prominence that has mirrored China’s growing importance in the gold market. In 2020 SGE introduced the Shanghai Gold Price benchmark to cement China’s role as a price-setter, to help the internationalisation of the RMB and to broaden international participation in the Chinese market. It should be noted that SGE’s spot and deferred contracts are complemented by very active futures trading on the Shanghai Futures Market (SHFE), although the two exchanges are not directly linked.

Secondary market centres

Other important markets include Dubai, India, Japan, Singapore and Hong Kong. There are exchanges in all these markets offering a range of spot trading facilities or listed contracts but these have not attracted the liquidity seen on the market’s primary venues. Nonetheless, these markets play an important role to varying degrees in serving local demand or acting as regional trading hubs. For example, Hong Kong has long acted as a gateway to the Chinese market and Singapore is establishing itself as an important focal point for trading in the ASEAN region.

How to Trade Gold (GLD, GDX) in 4 Steps

Whether it’s behaving like a bull or a bear, the gold market offers high liquidity and excellent opportunities to profit in nearly all environments due to its unique position within the world’s economic and political systems. While many folks choose to own the metal outright, speculating through the futures, equity and options markets offer incredible leverage with measured risk.

Market participants often fail to take full advantage of gold price fluctuations because they haven’t learned the unique characteristics of world gold markets or the hidden pitfalls that can rob profits. In addition, not all investment vehicles are created equally: Some gold instruments are more likely to produce consistent bottom-line results than others.

Trading the yellow metal isn’t hard to learn, but the activity requires skill sets unique to this commodity. Novices should tread lightly, but seasoned investors will benefit by incorporating these four strategic steps into their daily trading routines. Meanwhile, experimenting until the intricacies of these complex markets become second-hand.

1. What Moves Gold

As one of the oldest currencies on the planet, gold has embedded itself deeply into the psyche of the financial world.   Nearly everyone has an opinion about the yellow metal, but gold itself reacts only to a limited number of price catalysts. Each of these forces splits down the middle in a polarity that impacts sentiment, volume and trend intensity:

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  • Inflation and deflation
  • Greed and fear
  • Supply and demand

Market players face elevated risk when they trade gold in reaction to one of these polarities, when in fact it’s another one controlling price action. For example, say a selloff hits world financial markets, and gold takes off in a strong rally. Many traders assume that fear is moving the yellow metal and jump in, believing the emotional crowd will blindly carry price higher. However, inflation may have actually triggered the stock’s decline, attracting a more technical crowd that will sell against the gold rally aggressively.

Combinations of these forces are always in play in world markets, establishing long-term themes that track equally long uptrends and downtrends. For example, the Federal Reserve (FOMC) economic stimulus begun in 2008, initially had little effect on gold because market players were focused on high fear levels coming out of the 2008 economic collapse.     However, this quantitative easing encouraged deflation, setting up the gold market and other commodity groups for a major reversal.   

That turnaround didn’t happen immediately because a reflation bid was underway, with depressed financial and commodity-based assets spiraling back toward historical means. Gold finally topped out and turned lower in 2020 after reflation was completed and central banks intensified their quantitative easing policies.   VIX eased to lower levels at the same time, signaling that fear was no longer a significant market mover. 

2. Understand the Crowd

Gold attracts numerous crowds with diverse and often opposing interests. Gold bugs stand at the top of the heap, collecting physical bullion and allocating an outsized portion of family assets to gold equities, options, and futures. These are long-term players, rarely dissuaded by downtrends, who eventually shake out less ideological players. In addition, retail participants comprise nearly the entire population of gold bugs, with few funds devoted entirely to the long side of the precious metal.

Gold bugs add enormous liquidity while keeping a floor under futures and gold stocks because they provide a continuous supply of buying interest at lower prices. They also serve the contrary purpose of providing efficient entry for short sellers, especially in emotional markets when one of the three primary forces polarizes in favor of strong buying pressure.

In addition, gold attracts enormous hedging activity by institutional investors who buy and sell in combination with currencies and bonds in bilateral strategies known as “risk-on” and risk-off.” Funds create baskets of instruments matching growth (risk-on) and safety (risk-off), trading these combinations through lightning-fast algorithms. They are especially popular in highly conflicted markets in which public participation is lower than normal.

3. Read the Long-Term Chart

Take time to learn the gold chart inside and out, starting with a long-term history that goes back at least 100 years. In addition to carving out trends that persisted for decades, the metal has also trickled lower for incredibly long periods, denying profits to gold bugs. From a strategic standpoint, this analysis identifies price levels that need to be watched if and when the yellow metal returns to test them.

Gold’s recent history shows little movement until the 1970s, when following the removal of the gold standard for the dollar, it took off in a long uptrend, underpinned by rising inflation due to skyrocketing crude oil prices.   After topping out at $2,076 an ounce in February 1980, it turned lower near $700 in the mid-1980s, in reaction to restrictive Federal Reserve monetary policy.   

The subsequent downtrend lasted into the late 1990s when gold entered the historic uptrend that culminated in the February 2020 top of $1,916 an ounce. A steady decline since that time has relinquished around 700 points in four years; although in the first quarter of 2020 it surged 17% for its biggest quarterly gain in three decades, as of March 2020, it’s trading at $1,618 per ounce. 

4. Choose Your Venue

Liquidity follows gold trends, increasing when it’s moving sharply higher or lower and decreasing during relatively quiet periods. This oscillation impacts the futures markets to a greater degree than it does equity markets, due to much lower average participation rates.     New products offered by Chicago’s CME Group in recent years haven’t improved this equation substantially.

CME offers three primary gold futures, the 100-oz. a contract, a 50-oz. mini contract and a 10-oz. a micro contract, added in October 2020.       While the largest contract’s volume was over 67.6 million in 2020, the smaller contracts were not as widely traded; 87,450 for the mini and .05 million for the micro.       This thin participation doesn’t impact long-dated futures held for months, but strongly impacts trade execution in short-term positions, forcing higher costs through slippage.

The SPDR Gold Trust Shares (GLD) shows the greatest participation in all types of market environments, with exceptionally tight spreads that can drop to one penny. Average daily volume stood at 14.54 million shares per day in March 2020 2020, offering easy access at any time of day.   CBOE options on GLD offer another liquid alternative, with active participation keeping spreads at low levels. 

The VanEck Vectors Gold Miners ETF (GDX) grinds through greater daily percentage movement than GLD but carries a higher risk because correlation with the yellow metal can vary greatly from day to day.   Large mining companies hedge aggressively against price fluctuations, lowering the impact of spot and futures prices, while operations may hold significant assets in other natural resources, including silver and iron.

Bottom Line

Trade the gold market profitably in four steps. First, learn how three polarities impact the majority of gold buying and selling decisions. Second, familiarize yourself with the diverse crowds that focus on gold trading, hedging, and ownership. Third, take time to analyze the long and short-term gold charts, with an eye on key price levels that may come into play.

Finally, choose your venue for risk-taking, focused on high liquidity and easy trade execution.

Gold Trading

Trade Gold

In today’s markets it is possible to make profits from trading commodities, such as gold without having to physically own the metal. Gold trading via CFD’s is based on opening a temporary order to buy or sell an exact amount of gold. The profit or loss is determined by the change in the price of gold during the contract duration.

Start trading Gold with AvaTrade and enjoy the benefits of trading with a regulated, award-winning broker!

At AvaTrade you can trade gold online, easily and effortlessly. Try gold trading with the leading regulated broker and enjoy the following benefits:

  • Trade gold with competitive spreads
  • Make larger trades with leverage of up to
  • Trade on the powerful MetaTrader 4 or MetaTrader 5 platforms
  • We allow trading forex and commodities on the same platform, so you can hedge your risks
  • Trade whichever way you think the market will go – long or short
  • Trade anytime with our unique app AvaTradeGO
  • Get 24/5 live client support in your language

Gold Trading History

Since prehistoric times gold was one of the first metals to be mined, mainly because of the form in which it was found, being nuggets or small pieces at the bottom of a river. It became so high in demand that Egyptians started mining it in 2000 BC. Throughout history many civilizations chose gold as a reliable and universal form of money for trading goods.

The gold standard, the monetary system for which the economic currency used is backed up by the gold reserves of the issuing country. It came to exist, due to the recognition of gold as an actual currency. It was abandoned by the United Kingdom and the whole British Empire when World War I began. Most of the other countries also abandoned it during the 20 th century.

How to trade gold

  • Open a trading account at Avatrade
  • Fund your account to have a sufficient trading budget
  • Choose the desired position size
  • Select desired leverage
  • Open a Long (buy) or Short (sell) position according to your analysis

Different forms of gold available to traders and investors:

Physical metal (bullions or coins) – A bullion is a grouping or bulk of precious metal. Measured in the form of a bar and weight.

Gold certificates – These are very similar to the first paper bank notes. Started in the 17 th century, these gold certificates acted as proof of gold ownership, and were passed like cash payments. Today they are still issued by certain banks, and represent a quantity of gold bullion or coins for its owner.

Gold futures – Is a contract agreement for the delivery of gold in the future at a set price. Investors use this to manage the price risk. Since gold futures contracts are traded at centralized exchanges, these contacts offer more leverage and flexibility than trading commodities themselves.

Gold-based ETFs – With the idea that gold continues to offer good returns, the ETF’s – exchange traded funds, are managed by gold trading experts. They can potentially give you a better chance to earn more, than if you were to trade it on your own. Keep in mind the price of gold still will continue to affect the ETF.

Contracts for difference – suitable for traders but not investors, this derivative allows to profit from the changes in gold price during the contract duration, without either a right or obligation to purchase the actual underlying asset. Nature of CFDs allows shorting gold and trading it on a margin.

EXCHANGE INFORMATION

  • MT4 Symbol – GOLD
  • Exchange – NYMEX
  • Trading Hours – 23:00 – 21:59
  • Increment: 0.01
  • Minimum Trade Size: 1 ounce

Why Trade Gold with AvaTrade

You can join AvaTrade today for as little as and start gold and other precious metals trading. We pride ourselves in being a regulated and trusted broker worldwide for the past 11 years and are here to help you along the way.

You will get access to a range of educational tools, trading advantages and benefits that are exclusive to AvaTrade clients. We offer a range of trading platforms suitable for all level traders including automated trading solutions like Zulu Trade, as well as Autochartist and Guardian Angel add-ons. You are guaranteed to find the trading environment that suits your style.

Get started in gold trading with AvaTrade and enjoy the benefits of trading with a regulated, award-winning broker!

Gold Trading Online

Gold trading with AvaTrade is easy to understand, especially if you already have some experience of the forex market. Gold units are measured in Troy Ounces against a currency – usually the dollar – in a similar way to a Forex currency pair.

Gold Trading Influences and Gold Trading Strategy

Several distinct factors come into play when analysing the movement of the Gold price:

  • Supply and demand – Most of the global demand comes from jewelry production and manufacturing (50%), and investment purposes (40%). Increased demand with low supply can mean a higher price, on the opposite end an oversupply, with weak demand can drive prices lower.
  • Market sentiment – Political uncertainty and/or instability contributes to global growth uncertainty and does help in the rising prices of gold.
  • Market volatility – Gold has often been used as a safe haven investment when markets are unpredictable.
  • Currency movements – The US dollar is a strong influencer. When the dollar falls, commodity prices around the world increase. The US dollar and gold have an inverse relationship.

Overall if you are looking to an alternative investment arena, or a hedge – which is a reduced risk of price movements in any asset, then gold might be the right asset for you.
Please note that trading in this market involves risk like any other.

Here are a few tips for trading gold:

  • Gold is compared to the yen since both assets fall into the category of a “safe haven instrument”, they tend to move in the same direction. Often, you can check your trade set ups by comparing the two.
  • Focus on the price action and keep in mind that commodities can move more than currencies.
  • The most popular Gold exchange rate is the XAU to USD rate. XAU is the trading terminal’s code for gold.

Are you ready to start trading gold today? Start trading the gold market with AvaTrade and enjoy the benefits of trading with a regulated, award-winning broker!

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