Have you ever given your friend a gold ring as a token of your true love? Gold has been the most precious metal since the dawn of civilization. It is still considered the ultimate currency and the ultimate store of value in times of political uncertainty. Over the past ten years, the gold market has been in a secular upward trend with the spot price recently breaching the historic barrier of $1,200 per troy ounce. This was followed by a retracement and prices fell to around $1,100 an ounce, but this uptrend is expected to continue for some time.
Many investors have turned to forex after the historic crash in the stock market over the past decade. Many small investors lost more than 60-70% of their savings accounts in the stock market crash. Now, Forex is a great money making opportunity. It is said that Forex trading will make many millionaires in this decade.
Many people don’t know that you can also trade gold in Forex. 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 are in high demand in the industrial sector and gold and silver prices are expected to skyrocket as industrial production picks up and consumers resume buying as the global economy recovers from the recession. When you trade a currency pair, you are long in one currency and short in the other. In other words, you simply buy one and sell the other.
In forex spot gold trading, you trade one ounce of gold on the spot market against the US dollar (USD). So just like when you trade a currency pair, when you trade gold in forex, you are taking a long or short position in gold against the USD. There are many currency pairs that you can trade like GBPUSD, EURUSD, UADUSD, NZDUSD, JPYUSD. Spot trading gold in forex is almost identical in that the pair replaces gold with one currency and the other currency is always the USD.
So, in spot gold trading on Forex, you are trading one troy ounce of gold against USD. Interestingly, its symbol is XAUUSD and XAU represents one ounce of gold. Now, suppose the price quote in the spot market is 1100 XAUUSD. This means that one troy ounce of gold is currently equal to $1,100 USD on the spot market.
As in other financial markets, price quotes in the gold spot market have a bid/ask spread. So if the price quote is 1110/1115, it means that you can sell a troy ounce of gold in the spot market for $1,110 and buy a troy ounce of gold for $1,115 which means you have to pay a spread of $5 per troy ounce when trading gold in the spot market. Spot gold trading in Forex is a fast moving market and spreads change throughout the day.
Now a standard lot in currency trading is equal to $100,000. But in the case of gold in Forex, a standard lot is equal to 10 troy ounces of gold. So, if you find the price quote 1112/1117 and you are interested in going long. In that case you need to buy 1 lot of gold which is equal to $11,170. The spot gold market is a fast moving market and price quotes are constantly changing. So, suppose exactly 60 minutes later, you find the quote 1120/1126. You see a profit and decide to sell at $11,200 to make a $30 profit. Now if you had used leverage, you would have needed a much lower initial investment to make $30 in just 60 minutes.
Gold is also known as the anti-dollar. This means that their is an inverse relationship between gold and the USD. This inverse relationship can help you hedge your position in other currency pairs.
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