Reasons to trade gold

1. REASONS TO TRADE
GOLD

2. POINTS TO BE COVERED TODAY:
• REASONS TO TRADE GOLD.
• THE BEST GOLD TRADING STRATEGIES.
• TRADING GOLD WITH FUNDAMENTAL ANALYSIS.
• CORRELATION OF GOLD WITH U.S. INFLATION
• TRADING GOLD WITH SEASONALITY
• GOLD FUNDAMENTAL ANALYSIS: BOTTOM LINE

3. REASONS TO TRADE GOLD
• A good reason to trade gold is that its price tends to fluctuate with
greater volatility and force than traditional forex currency
pairs such as EUR/USD.
• For example, major currency pairs often fall or rise by only 8% or
so over a year, while the price of gold has sometimes risen by
100% within only a few months.
• Even though the cost of trading gold in terms of spread and
commission is proportionately greater than it is in forex currency
pairs, this bigger price movement still tends to make it more
rewarding in terms of overall profit.
• For example, the cost of trading EUR/USD is usually less than

4. THE BEST GOLD TRADING STRATEGIES
• Deciding upon the best gold trading strategy or
strategies to use requires you to consider the
cases for trading gold using fundamental or
technical analysis, or a combination of both.
• Let’s consider the basis of such strategies and
how they have performed over recent decades to
help you make that decision.

5. TRADING GOLD WITH FUNDAMENTAL
ANALYSIS
• Unlike stocks and shares, or a valuable commodity such as crude oil, gold has
very little intrinsic value as it has few practical uses.
• However, it is rare, and humans are attracted to it and have attributed value to it
by consensus. It is impossible to measure minor fluctuations in that human
perception from day to day, so in this sense, fundamental analysis is of limited
value.
• Another aspect of gold which differentiates it from fiat currencies such as the
U.S. Dollar is that its supply is limited.
• This should mean that a limited supply of gold can be taken for granted. A
problem with this analysis is that almost all the world’s known gold is held by
banks and governments, but nobody knows for sure exactly how much there is.
• It seems that the large banks, who have colluded for years to fix the price of
gold by means of a twice daily “gold fix”, are able to manipulate perceptions of

6. TRADING GOLD WITH FUNDAMENTAL
ANALYSIS-I
• A fundamental analysis of gold can be applied through a
macroeconomic analysis. For example, analysts
traditionally see the value of gold rising under the
following circumstances:
• High Inflation
• Economic Crisis / Instability
• Falling U.S. Dollar
• Negative Real Interest Rates

7. CORRELATION OF GOLD WITH U.S. INFLATION
• The U.S. Has not seen historically high annual rates of inflation, defined as a
rate greater than 6%, since the early 1980s.
• The U.S. Suffered from high inflation during the late 1970s and early 1980s, and
the price of gold rose dramatically during this period.
• There was a strong correlation between gold and inflation over this time, but
when inflation rose again during the late 1980s the price of gold fell.
• The bottom line is that the price of gold may be likely to rise when inflation
reaches an unusually high level, and there is a small positive correlation
between the monthly change in the gold price and the monthly U.S Inflation rate
over the entire period from 1976 to 2019.
• The correlation coefficient between the two was 17.24%, with 100% indicating
perfect correlation and 0% indicating no correlation at all.
• This means that it is probably wise to only expect gold to rise strongly when
inflation reaches an unusually high rate, but it is also reasonable to be more
bullish on gold when inflation is rising and more bearish when inflation in

8. GOLD / U.S. INFLATION CORRELATION
CHART

9. CORRELATION OF GOLD WITH ECONOMIC CRISIS /
INSTABILITY
• Economic crisis or instability is difficult to measure objectively.
• However, there can be little doubt that a country entering a major
economic crisis tends to see the relative value of its currency
depreciate.
• Additionally, the worst economic crisis in the U.S.A. In recent
decades occurred during the 1970s, and this was a period during
which the price of gold in U.S . Dollars increased dramatically.
• More recent evidence that gold tends to rise during a period of
serious economic crisis appeared in 2020 as the coronavirus
pandemic hit the U.S.A. And other western nations starting in
February.
• From march to July 2020, the price of gold in U.S . Dollars

10. CORRELATION OF GOLD WITH THE U.S. DOLLAR
INDEX
• As gold is priced in U.S. Dollars, you would expect
the price of gold in dollars to be very strongly
positively correlated with the U.S. Dollar index,
which measures the fluctuation in the relative
value of the U.S. Dollar against a volume-
weighted basket of other currencies.
• A measurement of the correlation coefficient of all
the monthly price changes in gold and the U.S.
Dollar index from 1976 to 2019 shows a minor
positive correlation of approximately 25.23%.

11. GOLD / U.S. DOLLAR INDEX CORRELATION
CHART

12. CORRELATION OF GOLD WITH NEGATIVE REAL
INTEREST RATES
• As gold is believed by many to be a store of value with a finite
supply, while fiat currencies can be debased or artificially inflated
by the central banks and governments which control them, it can
be argued that the price of gold in a fiat currency such as the U.S.
Dollar will be bound to rise when the fiat currency is being
debased.
• Indicators for the debasement of a currency include high inflation,
which we have already discussed, and negative real interest rates.
A currency has a negative real interest rate when its inflation rate
is higher than its interest rate, because the currency is
depreciating in value by more than it pays in interest, so
depositors of that currency make a net loss over time.

13. CORRELATION OF GOLD WITH NEGATIVE
REAL INTEREST RATES- I
• The problem we face here is that the U.S. Dollar has
suffered a negative real interest rate only twice since
1976: during a very brief period in the late 1970s, and
then again during 2018 and 2019.
• This means that we don’t have a long enough sample to
make a statistically meaningful analysis of the correlation
between gold and a negative interest rate, but it is true
that the price of gold in U.S. Dollars broadly rose during
these periods, so it would seem possible that there is a
positive correlation.
• The correlation between the price of gold and the U.S.

14. REASONS TO TRADE
GOLD

15. THANKS FOR LISTENING
REASONS TO TRADE GOLD