Ioannis from Greece

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The case for shorting gold or going long?

September 8, 2020 17:38
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gold trading, shorting gold,

In this post, we will talk about the latest important news connected with the price of gold and how to short or buy this precious metal from the comfort of your home.

The price of gold booked the first weekly gain in three weeks, settling 1.20% higher above the psychological $1950 level. The price of gold almost tested the critical $1976 resistance level again on Friday, as the dovish Fed narrative continued to pressure the US dollar alongside the Treasury yields. A dovish Fed, tensions with China, not to mention the COVID -19 pandemic, all have combined to keep the US dollar in sell-off mode. All of these indicate that the price of gold will probably advance even more in the upcoming months.

How to short Gold
Gold is considered a safe-haven asset and the price of this precious metal have surged in the wake of the COVID-19 pandemic as investors look for safer places to invest their money. The Federal  Reserve announced that it will continue to buy Treasuries and mortgage-backed securities “at least at the current pace” over the coming months. The policymakers indicated unprecedented levels of uncertainty over the global economic future and according to analysts, the scenario for the price of gold could be even better. Despite this, there will be certainly lots of opportunities for shorting this precious metal. Shorting the gold is basically betting against the gold and when you short the gold you are expecting the price to go down instead of up. So you can make money when the price goes in the opposite direction and for those with great skill is a way to make some good money. One of the easiest ways to short gold is through a margin trading platform. Many brokers allow this type of trading, with margin trades allowing for investors to “borrow” money from a broker in order to make a trade. It’s important to remember that there may be a leverage factor, which could either increase your profits or your losses. It’s not a good idea to hold a short position for long periods of time or to leave an open short position with no stop-loss order. Another way to short the gold is to sell this precious metal at a price you feel comfortable at, wait until the price drops, and buy the gold again. Becoming profitable “by shorting the gold” requires a strategic plan with short and long-term goals, when you will trade, the amount of capital, trading time frames…

The price of gold advanced above $1950 last week, the risk of additional advances is not over yet and the major trend is still bullish (uptrend). The global political situation has also a big influence on this precious metal but the price needs to fall below $1900 level to extend moves lower. On the chart below, I marked support and resistance levels – $2000 represents the current resistance levels, $1900 and $1800 are the current support levels. If the price jumps above $2000 it would probably reach the $2050 level very soon, the next target could be located around $2100. If the price falls below $1900 that could be a very good opportunity for the short- term traders, short-term traders can put the stop loss at $1915 and take profit at $1870 or below.

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gold chart
Gold is considered a safe haven asset because it has acted as a store of value, maintaining its purchasing power for thousands of years. Safe-haven assets typically perform well during downturns and financial crises when riskier assets underperform. The Fed will increase its monetary stimulus and keep interest rates lower for longer to support the economic recovery from the COVID-19 pandemic. The US dollar will lose its value further and analysts predict that price of gold will strengthen even more. Despite this, there will be certainly lots of opportunities for shorting this precious metal and If the price falls below $1900 that could be a very good opportunity for the short- term traders. Technical and fundamental analysis are the most important tools when it comes to analyzing the movements of this precious metal. Investors and the long-term traders are generally more focused on the fundamental analysis while short-term traders usually trade according to technical analysis in order to profit from short-term price moves instead of waiting to profit from long-term price movements.