How You Can Use Gold to Profit in the Forex Market

Why gold?

What exactly do forex traders and gold have in common? The two markets are actually interrelated and can complement each other. This happens because the prices of gold and the U.S. dollar move in opposite directions at times, and traders can capitalize on this by trading the two commodities together in their Forex market accounts, explains Investopedia contributor Pravin Satpute. Here’s how you can use gold to profit in the Forex market, plus some tips on ways to maximize your gains and eliminate some of the risks that come with this type of strategy trading.

The investment world has been all about gold for quite some time. Many of these investors see gold as a way to diversify their portfolios, and for good reason. Throughout history, people have turned to gold as a hedge against political uncertainty or economic downturns. But why is that? Why do so many people look at gold as an alternative asset class? For one thing, it’s not just a shiny metal—it’s also something you can trade on an exchange if you buy physical gold bullion.

The ways you can profit

Investing involves storing gold for a long period of time, typically six months or more. During that time, you may earn interest based on how much gold you have and where it’s stored. In some cases, you can also make a profit if your investment gains value over time. For example, you might exchange $100 of silver bullion for $110 worth after six months because of price fluctuations and other factors.

What do you need to know?

The markets aren’t always rational. Take gold, for example—when it hit $1,900 an ounce a few years ago, many analysts argued that gold had peaked and was destined to decline. Fast-forward about two years and you can see just how wrong they were. As of mid-2018, gold prices are at about $1300 per ounce—not far off from its peak level of almost five years ago.

Do you have what it takes?

If you think you have what it takes, you’re right! Or maybe you don’t. But let’s assume that you do. Let’s say there are two ways for a trader to profit from price movement: through capital gains or through earning interest on deposits.

So, how do you profit with gold in forex?

If you want to trade gold as part of your forex strategy, you’ll need two things: a broker who deals in gold (i.e., not a cash-only broker) and access to a currency futures market for gold. Finding such brokers is pretty easy—not all of them are listed on Forex sites, but most are. Just enter gold brokering into any search engine and you should get more than enough hits to choose from.