Is Gold the Right Asset to Trade?

Meta: Trading gold in the binary options market can be very profitable. Should you consider trading this precious yellow metal?

Gold is one of the most exciting financial assets to trade online. The main reason for this is its relatively high volatility compared to other financial assets. Gold is known to offer ample movement on a daily basis to allow traders the opportunity to make substantial short term gains. In binary options trading, for instance, speculating on the price of gold can be very profitable because money is made even when price closes fractionally higher or lower than the strike price.

Benefits of Trading Gold

Another reason gold has become a favorite among most traders is its long trading hours. The online financial market is open 24 hours a day but not all assets will be ideal for trading throughout. Gold, however, can be traded effectively throughout the open sessions of the major international markets. Traders can find sufficient volatility throughout, regardless of their geographical location or their availability.

For a long time, gold was regarded as a ‘safe haven’ and its prices would surge higher in times of economic turmoil. Investors would shift their investments to gold so as protect their net worth in times of economic uncertainty. However, these days the commodity is slowly losing its safe haven status but it still remains an asset of choice in times of high inflation. Gold is not sensitive to inflation and institutions usually buy the commodity so as to retain the value of their wealth when inflation rises.

Prior to the current bear run, gold was in a solid multi-year bull run; so much so that the current bearish regime is considered a retracement of all those years of practically unlimited growth. A major reason for this was that its production levels are almost nearing its limits while demand is expected to rise, especially in the booming Chinese industry. Gold is very sensitive to its demand and supply dynamics and any news relating to such factors will spur momentous volatility on its price.

Gold Fundamental Analysis

Although gold has been in a solid downtrend for a while now, its price has continued to be weighed down by expectations of a December rate hike by the U.S. Federal Reserve.  The value of gold tends to fall when the value of the US dollar (USD) rises and vice versa. This is because when the dollar rises, gold becomes more expensive for investors who use other currencies and this reduces its demand. A rate hike in the US will likely boost the value of the dollar and this will continue to pressurize gold prices lower.

Last week, the price of golf drifted to below $1,080 an ounce with the US dollar strength being the main factor for this drag. However, as this week opened, the commodity proved that it still retains some of its safe haven qualities as it opened higher at around $1,093 on the back of multiple terror attacks in Paris, France on Friday. Gold is expected to remain resilient as investors flock to safe haven assets in times of crisis and uncertainties.

This week, there are two key events involving the US dollar that will likely impact the price of gold. The first is the release of consumer price index (CPI) data. The market expects this figure to come in at 0.2% compared to -0.2% last month. If the figure meets or exceeds these expectations, the dollar will continue to strengthen and the pressure on gold will only increase. There is also the FOMC (Federal Open Market Committee) reading coming up where investors will get clues on whether a December interest rate hike is a possibility in the US. These events will continue to spur volatility on the gold price and traders should monitor these events for trading opportunities.

Gold Technical Analysis

The current price of gold is $1,090 an ounce, after retreating lower for 4 weeks now. This is the first time this has happened since the June/July bear run. The bearish price movement is expected to find support at $1,171 (monthly low July 2015), followed by $1,045 (monthly low February 2010) and then $1,000 (psychological level and round number). Beyond this, $865 (monthly low April 2008) is the next significant support but this level looks unattainable because of the current oversold conditions in the market.

Despite bearish fundamentals, the oversold conditions make a strong case for an upward pullback move from current levels to around $1180, where fresh selling interest can resume. The current prices are also close to the 200-period moving average on the monthly chart ($1,169) where the commodity is expected to find significant support.

Another technical factor weighing down on gold is the December Comex gold futures which continued their bearish trend last week and traded to nearly a six-year low. As expiration nears, volatility is expected on the spot price of gold.

Final Word

Gold is one of the best assets to trade as it guarantees volatility throughout. The commodity is influenced by numerous fundamental and technical factors and it can provide traders with endless trading opportunities that they can exploit in order to make a profit.

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