Since the beginning of 2020, the gold went up in value by over 10 % which evidences the investors’ heightened interest in this precious metal. In times of crisis, the gold also attracts private investors who rightfully consider it to be one of the safest assets.
However, the gold, the price of which is going up, offers more opportunities to make money than just passive investment in bullions. Today, we are going to explore methods by using which you can make money with gold.
Gold is believed to be one of the most reliable assets for the buy-and-hold investment strategy. It is often referred to as a safe-haven asset. Large investors such as banks and funds, and even regular people know that when the economic situation looks unstable, you should invest in gold to protect your money.
Based on the law of supply and demand, safe-haven assets attract increased interest during crisis and economic turmoil. In contrast, the gold price per gram drops when the economy is growing.
In addition, the price of the precious yellow metal depends on the U.S. dollar. If the American dollar grows, the price of gold goes down, and vice versa - when the dollar drops, the cost of gold rises.
The cost of gold is affected by economic and financial factors which makes it an excellent instrument for trading in financial markets. Those who are interested in conservative and passive investing can also buy bullions in the banks. Financial institutions publish the gold price per gram along with the exchange rate in real time.
The buy-and-hold strategy is also used for precious metals in order to protect savings from inflation, but this doesn’t always work. It’s not easy to make a profit by purchasing bullions.
The second method to make money with gold is by trading contracts for difference (CFD). CFDs on gold are included in the list of instruments available in the MT4 trading terminal offered by Gerchik & Co.
The key advantage of trading gold online lies in the ability to react quickly to price changes, make trades and profit from both the increase and the decline in the gold price. Below we are going to list and analyze three simple ways to make money with gold by trading this asset.
We have already established that the price of gold depends on the global economic environment and correlates with the U.S. dollar.
To determine whether the price of this precious metal will go up or down, the trader should keep a close watch on three factors. These are the change in risk appetite, dollar value and technical issues. Let's examine them more closely below.
When it comes to financial markets, there are high-return and high-risk assets, as well as safe ones. Gold is one of them. When the economic situation in the world and large countries looks stable, investors tend to buy high-yielding instruments such as stocks and currencies of developing countries.
Under such circumstances, it is said that the risk appetite in the market is high, meaning that the demand for safe assets is declining, and the price of gold is dropping.
In 2020, as the global economy is facing a severe crisis due to the coronavirus pandemic, the forecasts suggest that this will be the worst downturn in the last 70 years, to say the least.
In the first quarter, the American economy decreased by 4.8 percent after rising by 4.6 percent in the previous period. Meanwhile, the unemployment rate for April may reach double digits. Prior to the crisis, it was about 3.5% on average.
The situation looks incredibly worrying. This means that the demand for safe-haven assets is going to increase. Against this backdrop, the gold price per gram has increased by more than 10% since the beginning of the year. The experts claim that it will only continue to grow, and so it's a high time to make money by buying this precious yellow metal.
The cost of gold in financial markets is expressed in dollar terms. The most popular trading instrument is XAU/USD (gold/U.S. dollar). There is an inverse relationship between precious metal and the American currency i.e. when the value of the dollar rises, the price of gold drops, and vice versa.
The chart below demonstrates the way gold and the U.S. dollar are trading. You can notice the inverse correlation. The configuration of the chart lines is similar. They differ in terms of the amplitude of volatility and appear as if in a mirror image.
So, what are the forecasts for the U.S. dollar in 2020? At the beginning of the crisis, the Federal Reserve System of the United States cut the interest rates to 0.25% and announced the launch of the quantitative easing program.
In an effort to help the Americans to make it through the tough times, the state decided to flood the system with cheap money. The U.S. FRS aims to reduce the value of the dollar. With a medium-term drop in the dollar exchange rate, the price of gold will go up in the medium term.
Since you are already aware of the fundamental factors that affect the gold price, let’s take a look at the chart and do a comprehensive technical analysis. For this, we will draw horizontal levels of support and resistance on the chart. Start with a higher (monthly) timeframe, then gradually move on to the daily one and finally to the 4H timeframe.
By taking a look at the gold monthly chart, we can see that gold has approached the 2011 high for the first time in many years. This is the price that the gold has reached following the 2008-2009 crisis. Currently, there is still room for medium-term growth towards this target which is evidenced by the levels beside 1794 and 1920.
After determining medium-term targets for gold growth, we can move on to the daily timeframe (see chart below). Intermediate levels of support and resistance are marked with blue lines.
Let’s take a look at the 4H chart below. The gold is now trading in a local sideways corridor. Its support is marked with blue horizontal level 1689.91, and the red dotted line shows resistance 1747.04. You can search for the entry points in this corridor.
By evaluating the fundamental factors such as the demand for safe-haven assets and the dollar exchange rate, we can identify the price movement direction of the gold in the medium term. Using technical analysis, the trader identifies the price movement target and entry points.
The combination of these three approaches will help you make money with precious yellow metal, using CFDs on gold offered by Gerchik & Co brokerage company.