subject: China and the Gold Market [print this page] The gold market has been fascinating to watch over the last few years - although it has not always been the easiest market to call. Yes, the general trend has been up but there have been some large swings and corrections along the way.
With the Chinese economy doing so well there must be increasing amounts of pressure to float the Yuan. This pressure is underpinning the price of gold. A stronger Yuan translates into a weaker Dollar, Euro and Pound.
While this does not make gold any more valuable in Global terms, it does obviously have an effect on its price in these currencies.
Those who like to take the ultra-long view seem to be speculating on gold benefiting from the strength of the Yuan.
However, it is not all good news for the metal. With the world economy beginning to pick up, the case for higher interest rates is getting stronger. Whilst the attraction for gold is self evident, it remains to be seen whether it can hold up under the pressure of higher rates.
If you are looking to trade gold then note that the metal is looking increasingly volatile and even gapping occasionally. Normally the metal moves up/down in $0.10 increments. When it gaps in highly volatile markets it can jump $10 at a time.
Even in the huge moves of the last few years there have been few such gaps. If the current volatility continues that might prove to be an irresistible attraction for the sellers of the precious metal.
If you are trading the gold market through a spread trading account then you may want to add a Guaranteed Stop Loss Order to your trades to help reduce your risk.
If you start losing money on a market and the market continues to move in the wrong direction, but hits the level that your Guaranteed Stop Loss order is set at, then, even if the market is Gapping, your trade will be closed. You wont lose any further funds.
Note that there are also other benefits of using the spread trading account if you are trading gold and other commodities. As suggested above, 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 gold spread will go down you can speculate on it to go down. If your research indicates that the price of gold will go up you can speculate on it to go up.
Usefully, spread trading profits do not incur any income or capital gains tax (tax laws may vary if you live outside of the UK or Ireland).
Finally note that with spread trading you can lose more than you originally staked or invested. Please ensure that spread trading matches your investment requirements as it does carry a high level of risk to your capital. Familiarise yourself with the risks. Seek independent advice if necessary.
