Gold Spread Betting Guide

Gold Spread Betting Guide

Gold Spread Betting Guide

arrow_forwardLive Gold Chart
arrow_forwardLive Gold Prices
arrow_forwardWhere to Spread Bet on Gold
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Live Gold Chart and Prices


9 November 2017: Gold – Still One to Watch

Gold is still near the bottom of the channel that it’s been for a year…

Still no trade yet but worth keeping an eye on if / when it hits the bottom of the channel.

There’s also resistance at $1,300 so this could get interesting.

Gold Chart - November 2016 to November 2017
No trade yet…



4 October 2017: Gold Carving Out Interesting Patterns

The daily gold chart is showing two interesting patterns.

1) It looks like it’s bouncing off the triangle resistance we discussed below although I’m not sure if there’s much we can read into that.

Long-Term Gold Chart: Feb 2016 to Oct 2017



2) The metal has been trading in a wide $125 up-channel for nearly a year.

Long-Term Gold Chart: Feb 2016 to Oct 2017 - Up Channel


If the market gets close to the up-channel support then it could make for an interesting buy.

The is one to keep an eye on for a few weeks.


2 October 2017: Funds Still Bullish on Gold

The COT reports shows the long:short ratio has dropped from 3.7:1 to 3.3:1 over the last 4 weeks).

So the hedge funds aren’t as bullish on gold as they have been but they are still bullish on the metal.

That’s still 3 long trades for every short trade.


13 September 2017: A Different Perspective on the Current Gold Market

Below, a 4m:29s video on current state of play from CMC Markets.




11 September 2017: Gold Yields 464pt Profit!

The tea leaves were right… but this was a rare textbook spread bet.

Long-Term Gold Triangle Pattern: 11 September 2017

On 3 August we took a look at gold which looked like it was in a classic triangle – see Gold Poised to Breakout Out of Long-Term Trend?.

We waited patiently and on 17 August we finally entered the trade (see above).

On 3 September gold hit our Limit Order at $1,335 and we closed for a profit of £232 (minus rolling costs of £0.66/day = £11.22) = a very healthy profit of £220.

Lovely.

Although don’t forget the risks:

  • error_outlineA loss of £118 (236 points) plus rolling costs and/or
  • error_outlineGold hitting a new channel that was neither good nor bad for our trade but still had rolling costs which started to add up

Did We Miss Out? Is There a Lesson to Learn?
Gold did hit $1,357 in the same move, i.e. a solid $22 (220 points) above the Limit Order level we set, so perhaps we missed out.

Having said that, I’m still not sure how I would have estimated that level. I’ll take the 464 points.


Where Next for Gold?
Gold is now back around the $1,334 mark, i.e. not far off the resistance area we identified.

I haven’t got a clue where it’s going next = no trade.

Like the recent Snap Inc. trade, this trade was a question of waiting for the right trade set-up and adding calculated entry and exit points.

We’re not trading again because of a “good feeling” or because “gold is my market”.

We will take another look at gold when we like a new technical analysis signal.




21 August 2017: Gold Testing the $1,300 Resistance

After last week’s tragedy in Barcelona, gold quickly tested the resistance around the $1,300 mark. The resistance held firm.

If the resistance continues to hold we may need to get out of this trade.

The weekly Commitment of Traders is encouraging though.

It’s showing that the big speculators, e.g. hedge funds, are slowly getting longer of gold.

The ratio of long:short trades on gold by the big speculators has slowly increased over the 5 weeks from 1.4:1 to 3.1:1.


17 August 2017: Gold Breaks Long-Term Triangle Pattern

Gold has broken the long-term triangle pattern we’ve been looking at.

We’ve discussed the pattern and trading theory in a bit more detail in: Gold Poised to Breakout Out of Long-Term Trend?

Long-Term Gold Triangle Pattern: 17 August 2017


600 Point Upside?

Yes, potentially. There’s also a 300 pt downside… so trade with small stakes!

The height of the triangle was roughly $60 (600 points) when the pattern was broken.

Therefore the theory suggests there’s 600 points of upside but I can also see resistance around the $1,338 – $1,343 area.

And therefore I’m going to aim just shy of the resistance and set my Limit order (Take Profit order) at $1,335.

The theory also suggests the triangle resistance, which has now turned to support, will be tested. And we are seeing plenty of testing of the new support.

Likewise the theory suggests putting your Stop Loss inside the triangle so I’ve set mine at $1,265.


Gold Trade Set-up

Remember that with gold you spread bet on every $0.10 (10¢) that the market moves – for more on the basics see our fully worked gold spread betting example.

I bought at $1288.6 with a small £0.5/pt stake so that gives me:

  • trending_upPotential profit = (1335.0 – 1288.6) x £0.5/pt = $46.4 x £0.5/pt = 464pts x £0.5/pt = £232
  • trending_downPotential loss = (1265 – 1288.6) x £0.5/pt = -$23.6 x £0.5/pt = -236pts x £0.5/pt = -£118
  • infoThis isn’t a quick trade so there will be rolling costs
  • warningRemember – triangle patterns can be reliable but they are far from guaranteed. Only trade if you can afford to lose.
Now I will try to keep my fingers off this trade.


10 August 2017: Battle of the Babies Boosts Gold

Gold was up $15 yesterday and the market nervousness around the Trump vs Kim Jong-un war-of-words is probably helping that.

It would have been a stronger move but the US dollar is also showing some strength.

Having said that, gold is happy to move $10-15 daily so I wouldn’t read too much into it.

Long-Term Gold Triangle Pattern
We have covered the gold triangle pattern below a few times on Spread Bet Magazine and it’s interesting to see the price still in the triangle.

So there’s still no trade yet but keep an eye on the potential break.

A break soon could suggest a further $50 move is on the cards.

Long-Term Gold Triangle Pattern


3 August 2017: Gold Technical Analysis

We’ve taken a longer look at gold which is in a classic triangle formation.


Where Can I Spread Bet on Gold?

Most of the FCA regulated spread betting companies offer live prices and charts on commodity markets like Gold.

See the commodities comparison table below.


Gold Spread Betting Comparison

navigate_beforeComparison Scroll navigate_next
Company Commodities
Min Stake
Gold
Spread
Silver
Spread
US Crude
Spread
UK Crude
Spread
Crude Diff.
Spread
Apply
Financial Spreads Review £0.50 4 3 3 3 3 Apply

Review
City Index Review £0 4 (+) 2.5 (+) 5 (+) 5 (+) n/a Apply

Review
ETX Capital Review &pound:0.50 6 3 6 6 Apply

Review
IG Review £1-5 3 3 3 3 no Apply

Review


About the Gold Market

When it comes to financial spread betting, gold is the most traded metal and one of the most traded commodities.

Historically, gold has been seen as a lower risk investment because the yellow metal is thought to hold its value, even during uncertain economic times. In fact, for a long time, gold was used as the main base currency when trading other commodities for this exact reason.

When markets are looking more volatile many investors prefer to take their money out of what are typically thought to be riskier markets, such as forex and equities, and re-invest in gold.

Even in relatively stable times, gold trading continues to play a significant role in many portfolios.

Financial spread betting can be a useful tool for an investor who is considering trading on gold. It allows tax free*, leveraged trades. You can also speculate on the price of gold to go up or down.

However, whilst the leverage can allow for larger profits, it can also lead to losses in excess of your initial investment. If you are looking to spread bet on gold you should only do so after comprehensive research. Where necessary you should seek professional advice.

Looking at the supply of gold, note that mine production, which has historically accounted for 60% of the world’s gold has consistently fallen since 2001. Having said that, due to new mines, China has been able to increase its output of the metal.

Despite the historical viewpoint there are still contradictory opinions on gold:
  • Gold is considered to be a long-term hedge against inflation. That has been empirically justified by research from the World Gold Council in June 2006.
  • Simon Denham of Capital Spreads however is not a fan, “In the end gold is just a pretty, useless, yellow lump of metal. Too valuable to actually use for anything and costly to own. In times of trouble it has safe haven value but in good or even in just-slightly-bad times, it is of little worth as a long term investment”.
Whatever your point of view is on the metal, gold can be an interesting market to trade and it sees some impressive price movements:
  • During 2007 it started trading around $605 per troy ounce before ending the year at $898
  • In March 2008, the yellow metal traded as high as $1,028. At other points in the year, gold was seen as low as $681
  • During February 2009, gold again broke through the $1,000 mark to trade up to $1,006 per ounce. The metal then dropped back to $864 in April 2009
  • Throughout 2009 and 2010, on a given day, the price of gold could easily swing by $10-20
  • In February 2010 the metal traded as low as $1,043. However by October 2010 prices were at record highs in excess of $1,300
  • In August 2011 gold breached the $1,900 level
  • In December 2012 it was more likely to be found hovering back at the $1,700 level


How to Spread Bet on Gold

Let’s say you want to financial spread bet on gold, so you look at a spread betting website, e.g. InterTrader, and see the real-time market price of:

Gold Rolling Daily: $1,801.3 – $1,801.7

Here’s what you can expect from a trade.

The Market: Gold Rolling Daily
The Spread: $1,801.3 – $1,801.7
How the Spread Works: You can trade on the Gold Rolling Daily market to go:

  arrow_upward  Above $1,801.7, or
  arrow_downward  Below $1,801.3

This is a Rolling Daily spread bet and so there is no expiry date for this trade. If you haven’t closed your position and the session ends then your position will roll over into the next session.

If a trade is rolled over then you will either be credited or debited for overnight financing based on whether you are betting on the market to go up or down.

For more details also see how rolling spread betting markets work.
Points Traded: Trades on the Gold market are priced in £x per $0.1.

Where $0.1 is 10¢ of the commodity’s price movement.

E.g. if Gold moves $4.00 then you would lose or gain 40 times your stake.
Stake: You work out how much you want to stake per $0.1, e.g. £2 per $0.1, £3 per $0.1, £5 per $0.1, £10 per $0.1 etc.
Short Staking Exercise: For example, if you have a stake of £2 per $0.1 and Gold moves by $2.60, you would win/lose £2 per $0.1 x $2.60 = £52.


Spread Betting Example | Buying Gold

Online spread betting on the commodity to increase

You Now Decide to Buy or Sell: Gold going:

  arrow_upward  Above $1,801.7? or
  arrow_downward  Below $1,801.3?

You Might Choose to Go Long:   arrow_upward  Above $1,801.7
You Choose Your Stake Size, Let’s Assume You Choose: £1 per $0.1
So What Next?
  • You will make a profit of £1 for every $0.1 Gold moves higher than $1,801.7
  • Your will make a loss of £1 for each $0.1 Gold moves lower than $1,801.7
When Speculating on a Market to Go Up Your Trading P&L = (Closing Price – Opening Price) x stake per $0.1
 
Example 1 Gold rises and the gold spread betting market is moved to $1,812.5 – $1,812.9.
Close and Take a Profit? At this point, you could opt to keep your position open or close it to lock in a profit. In this case you opt to take your profit. Therefore, you close your spread bet by selling at $1,812.5.
Your Trading P&L = (Closing Price – Opening Price) x stake per $0.1
($1,812.5 – $1,801.7) x £1 per $0.1
$10.8 x £1 per $0.1
Your Trading P&L = £108 profit
 
Example 2 Gold falls and the spread betting market is revised and changes to $1,790.0 – $1,790.4.
Limit the Loss? You can choose to keep your gold bet open or close it and restrict your losses. In this example you decide to close your position by selling the market at $1,790.0.
Your Trading P&L = (Closing Price – Opening Price) x stake per $0.1
($1,790.0 – $1,801.7) x £1 per $0.1
-$11.7 x £1 per $0.1
Your Trading P&L = -£117 loss


Fully Worked Trading Example | Going Short of Gold

Spread betting on the metal to decrease in value

You Now Choose to Go Long or Short: Gold to move:

  arrow_upward  Above $1,801.7? or
  arrow_downward  Below $1,801.3?

Let’s Assume You Want to Go Short:   arrow_downward  Below $1,801.3
You Choose Your Stake, Let’s Say You Select: £2 per $0.1
What Happens Now?
  • You lose £2 for each $0.1 Gold pushes above $1,801.3
  • You win £2 for each $0.1 Gold drops below $1,801.3
If You Are Speculating on a Market to Decrease Your Trading P&L = (Opening Price – Closing Price) x stake per $0.1
 
Example 3 Gold moves lower and the financial spread betting market adjusts and moves to $1,794.4 – $1,794.8.
Lock in Your Profit? You may opt to leave your gold trade open or close it and lock in a profit. For this example, you decide to close your trade by buying the market at $1,794.8.
Your Trading P&L = (Opening Price – Closing Price) x stake per $0.1
($1,801.3 – $1,794.8) x £2 per $0.1
$6.5 x £2 per $0.1
Your Trading P&L = £130 profit
 
Example 4 Gold moves higher and the gold market is adjusted and moved to $1,807.9 – $1,808.3.
Time to Limit the Loss?You can choose to let your spread bet run or close it and restrict your loss. In this case you choose to close your trade by buying at $1,808.3.
Your P&L = (Opening Price – Closing Price) x stake per $0.1
($1,801.3 – $1,808.3) x £2 per $0.1
-$7.0 x £2 per $0.1
Your P&L = -£140 loss


Gold Notes:


Gold Trading

If anyone regularly trades the gold market they will know that any Dollar negative news often translates into support for higher gold prices. This is not a surprise when the key gold market is traded in US Dollars per Troy Ounce.

So even without supply and demand affecting the price of gold, the market can swing purely on Dollar exchange rates, for example:
  • The prospect of low interest rates in the US makes gold a little more attractive. Note that low interest rates tends to make a currency weaker compared to currencies where the interest rates are higher.
  • China’s reserves contain hundreds of billions of US Dollars. Every now and again China will release Dollar negative rhetoric suggesting that they will sell some of their huge Dollar reserves. That naturally reduces the price of the Dollar and again supports the price of gold.
The question is, what should you do if you want to explore the gold market a little further?

Perhaps you are interested in making some small trades. Although note that the word ‘small’ is relative. Even with the gold spreads we are about to discuss you would need to deposit 100-200 Euros / Pounds / Dollars before trading.

One of the most convenient forms of trading gold is via ‘Financial Spread Trading’. The number of trading opportunities, easy access to world markets and the speed at which you can trade make it an option worth considering as part of your investment strategy.

Of course, any investment provides opportunity for making a loss. Share trading, buying a house and exchange traded funds can all lead to losses. With spread trading, these losses can be larger than your initial stake.

Having said that, spread trading does solve a lot of problems when it comes to tax, simplicity and range of options. There are some useful benefits.
  • Being able to ‘short’ a market provides interesting opportunities. You do not have to speculate on markets to go up. If your research suggests that the price of gold will go down you can speculate on it to go down. If your research indicates that the gold market will go up then you can spread bet on it to go up.
  • Spread trading profits don’t incur capital gains tax*.
  • Investors who speculate on stocks and shares in the traditional manner generally incur commission charges and/or broker’s fees. With financial spread bets there are no such fees.
Before trading though, ensure that spread trading matches your investment objectives. Spread bets carry a high level of risk to your capital. Familiarise yourself with the risks involved. Seek independent advice if necessary.

Factors that Influence the Gold Prices

Anyone who is interested in trading gold would no doubt also like to know more about the factors that influence the gold markets. In what follows we will briefly discuss some of the more important factors.

Supply and Demand

As with virtually any other commodity, the price of gold is reliant on the interplay between supply and demand.

For example, anything that hinders or reduces supply can increase the price of gold and similarly anything that causes an increase or decrease in demand for gold will also affect the price.

Supply Factors

South Africa is one of the largest gold producers in the world. If something should disrupt the supply of gold from that country, it will almost inevitably lead to an increase in the price of the metal.

Such disruptions could come from anything such as political upheaval or power cuts to a natural disaster or a mining accident.

On the other hand, some countries, such as the US and Russia, could affect the supply of gold by selling some of their gold reserves.

If such a country decided to sell a significant portion of their stock on the open market, it could flood the market with extra gold and put downward pressure on the price.

In addition, a sizeable new discovery of gold, or a new refinement process, could also increase supply and so weigh on the price.

Demand Factors

Some metals, such as platinum, copper and silver, have a large industrial and commercial demand in addition to any aesthetic / ornamental value.

By contrast, one of the biggest demand factors for gold is derived from the fact that it is used as a store of value, a safe haven, in times of economic uncertainty.

As a result, the metal can often perform at its best when traditional safe havens, like the Japanese Yen, are performing badly.

Some would suggest that the more uncertainty there is in the global economy, the better for gold, since investors see this metal as a key safe haven investment.

The Role of the US Dollar

For various reasons, such as inflation and large scale quantitative easing, the value of the US Dollar has declined against other currencies over the past few years.

The price of gold is generally quoted in terms of its value per Troy ounce in US Dollars. Therefore, any weakening of the US currency will increase the relative price of gold in Dollars, whilst a strengthening of the US Dollar can negatively affect the price of gold.


The Gold Market

The Gold Market, original article written 25 August 2011.

Gold was once dismissed by the economist John Maynard Keynes as a “barbaric relic” although over the last three years the metal has surged in value.

Since the September 2008 lows of $682.50, the barbarous relic has hit record highs in excess of $1,900 against the US dollar. There remains the potential for more gains to come as governments and central bankers keep digging themselves ever bigger holes.

Not only has gold surged against the dollar, but it has also surged to record highs against both the euro and sterling as investors look for a safe haven from the devaluation of fiat currencies.

As mentioned above, one of the key arguments used by the critics of the gold bulls has been that the metal has zero yield and has no purchasing power. Even central bankers have had their say, with US Federal Reserve chairman Ben Bernanke answering a question by announcing that ‘gold is not money’.

On the other hand, if you look at the commodity since the previous peaks of 1980 the metal has actually underperformed relative to inflation. That suggests that there could well be more upside for spread betting investors.

One of the main criticisms of gold has been that it offers no yield, although you could make the same argument for many major currencies at the moment. Sterling, the Japanese yen, Swiss franc and US dollar all currently have negative interest rates.

Over the last three years the metal has outperformed the US dollar, the euro and the pound which are all down by more than 10%. Gold is up by more than 100%.

According to Michael Hewson of CMC Markets, “The key reason gold is becoming an attractive investment is it cannot be printed, adjusted or manipulated to the whims of central bankers and governments. This suggests that the potential for a rise to $2,500 looks ever more possible”.

Although if you are thinking of spread betting on gold to rise then a word of caution. Even if gold does continue its rise, which is certainly not guaranteed, there could be large pull backs along the way. For example in August 2011 there were days when the metal dropped by $70 and even $100 in a single day.


AuthorAlex Turner

Senior Editor, SpreadBetMagazine

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