Trading gold can be an important part of your portfolio. However, using technical analysis can help with the timing of investments.

Trading gold can help protect your investments 

  • Gold can add stability to a portfolio: During times of economic uncertainty, gold tends to perform well.
  • There are several ways to trade gold: CFDs, ETFs and gold stocks are all options
  • Technical analysis can be important for timing: There is a time for any trade. Using technical analysis 

Gold contributes to stabilising a portfolio 

Gold has been a popular investment for centuries – the same still rings true today. 

There are several reasons why gold is still so popular, some of them are: 

  1. Gold is a steady investment – its performance tends to be more steady and less volatile than other precious metals and assets.

The chart below demonstrates gold’s performance in the past six months, alongside the performance of other precious metals. You can clearly notice how steady it performs (far less volatile). Moreover, whilst gold has fallen back in February, note how much further other precious metals have fallen. 

Gold also performs well measured against other major markets. Over the past six months, EUR was the only currency to outperform gold, leaving the USD and Wall Street significantly lagging.

  1. Gold helps to diversify a portfolio – it is a defensive asset that tends to outperform during times of market turbulence. 

When stocks are falling hard, gold will tend to outperform. Its defensive qualities help to support the gold price compared to higher volatile assets, such as stocks and other metals/commodities.

  1. Gold is seen as a safe haven – the yellow metal has always been seen as an asset to buy during times of war or geopolitical tension.

This has been one of the attractions that gold has had in recent years. Geopolitical tensions (China/US, and the war in Ukraine) sustain the appetite to own gold.

  1. Gold as a preserve of value – it is a finite resource helping it to retain its value.

Paper money can always be printed leading to its value to be reduced. However, gold does not suffer from this problem, helping to sustain its value over time.

What are the risks of gold?

There are always risks with owning any asset, gold is no different.

 Here are a few factors to consider when looking at this instrument.

  1. Gold does not pay any yield – you can get a dividend or a better yield on other assets.

    There is no dividend paid on gold assets. Investing elsewhere can generate income, which can be reinvested and helps long-term capital accumulation.
  2. Lower volatility is not guaranteed – the gold price can fluctuate significantly over shorter periods.

Timing is everything when it comes to investing. Gold is not guaranteed to increase in value over time. It is crucial to remember that investing at the wrong time can result in sizable losses.

Investing in Gold

Owning physical gold is the traditional method of buying this asset. However, this commodity is cumbersome, so there are also storage issues and insurance costs to think about. 

Furthermore, it may take some time to sell it if you need to. Let’s say you want to only sell some of your holdings – selling half of your gold can be tricky.

Fortunately, there are several other ways to trade this instrument. 

Here are a few ways that retail traders can be exposed to gold:

  • Trade Gold CFDs (Contracts For Difference) through a broker such as INFINOX
  • Trade Gold ETFs (Exchange Traded Funds) on the IXOne platform
  • Trade Gold stocks also on the IXOne platform

Technical Analysis 

Using technical analysis can help with timing

As mentioned above,  timing can be important to making a success out of gold trading. Traders use technical analysis of the gold price charts to help with analysing the direction of gold.

Using the IXOne platform, there are numerous analytical tools that traders can use. 

The current analysis shows:

  • Gold has turned lower in February and is unwinding the November to January rally.
  • Momentum indicators such as the daily RSI have turned into a corrective configuration under 50.
  • Moving averages are also starting to tail off and turn lower.

The near to medium-term move looks set to test a band of support between $1775/$1810.

Key resistance is at $1870/$1890.