CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75.00% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
In an ideal world, monetary easing results in flat or negative returns. However, in 2024, the expected “soft landing” of dominant economies like the US is accompanied by major elections worldwide. This, coupled with intensified geopolitical tensions, are favourable for the yellow metal. Here’s what the World Gold Council (WGC) expects from gold in 2024, along with a trading strategy to help you make the most of market opportunities.
As a global recession has not yet been completely averted, the WGC expects investors to hold on to safe havens, especially gold, to ensure profitable portfolios. However, the price of the precious metal will be determined by diverse factors.
While the consensus indicates that a soft landing is still expected, and the Fed has to precisely time its rate cuts. However, the resilient job market, evident in January’s NFP report, may force the central bank to extend its “higher for longer” stance. Notably, the Fed has managed a soft landing only twice in the last 50 years through 19 cycles of monetary tightening. A strong job market and poor chances of a soft landing are hinting at a hard landing, indicating that a recession has a 45% chance of occurring in the next 12 months.
Heightened geopolitical tensions tend to trigger safe-haven investing. The Middle East and Russia-NATO tensions, along with strained US-China relations may encourage investors to add gold to their portfolios. Increased demand may push the trading prices of the safe haven higher.
As OPEC+ producers pledge to further cut production through Q1 2024, the energy crisis in the EU may escalate. Budget cuts in the energy sector are extremely unlikely for an election year in the US and other countries. Further, the expansion of the Israel-Hamas conflict across the region is expected to disrupt the global supply chain. All these can potentially push oil prices higher and increase the probability of an uptick in inflation in major economies.
Given the current uncertainties, the WGC expects the demand for the yellow metal to remain strong among central banks worldwide. Above-trend buying has the potential to further boost gold trading prices.
All these factors are set to induce volatility in the gold market, which will require traders to take strategic positions to hedge their portfolios.
The XAU/USD trading hours last from Monday to Friday, allowing this precious metal to be traded 24×5. Using a combination of a fast and a slow simple moving average (SMA) is a great way to for beginners to speculate on gold.
Start by opening the price chart for gold on your MetaTrader 5 (MT5) terminal. Add the two indicators to your chart:
When the fast line crosses above the slow line, it is a signal to go long. Conversely, when the 10-day line crosses below the 50-day, experienced traders consider it a sign to take a short position.
While technical analysis helps you time your positions, a gold position size calculator can help you open trades according to your financial goals and risk appetite.
Interest rate cuts are inversely proportional to gold price. Traders usually factor in these cuts long before the actual date of the rate cut. This tends to make the price of the yellow metal rally, much like the Q4 2023 spike in gold price. Additionally, the price sees an additional uptick when the rate cut is announced. Both situations generate opportunities for traders.
Experienced traders observe treasury yields to speculate on gold trading prices. Historically, when the US treasury yield rises, the probability of gold prices declining is high and vice versa.
Just like gold, the EUR is considered a safe haven. Popularly, EUR/USD is a leading indicator of gold price. Experienced traders carefully observe the forex pair to make proactive decisions to trade the precious metal.
While gold can be traded in bullion form, a popular trading technique is via contract for differences (CFDs). This is because derivative instruments significantly lower entry barriers to the precision metal market. Plus, contract for differences allows traders to speculate on both rising and falling markets. However, added opportunities must be exploited with caution. Being a leveraged trading technique, CFD trading amplifies both profit and loss potential.
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