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INTRODUCTION TO GOLD

EBOOK
 Table of Contents
• Introductory Facts • Making sense of Value

• Application • Making sense of Contracts

• Monetary Exchange • The Power of Risk/Reward

• Trading as CFDs • Multi Timeframe Analysis

• Gold Exchange Traded Funds (ETF) • XAU/USD… Is that all?

• ETF Worldwide Holdings • Volatility and Options

• What influences the Gold Price? • The London Gold Fix

• Charting Gold… 1990 to Present • Factors that affect the Gold Price

• Charting Gold 2021 • Factsheet

• Comparing the Performance of Metals • Closing Statement

 Introductory Facts
Gold is a chemical element with the symbol
AU. It’s Atomic number 79 and it’s relative
atomic mass is 196.97.

They Symbol AU is derived from the Latin

word Aurum, meaning “Gold”.

The word Gold comes from the Old English

word “Geolu”, meaning yellow.

The Metal is dense, soft and malleable with a

bright yellowish colour and luster that re-
mains intact when exposed to air or water.
 Application
There are many ways that you can make an
investment in Gold such as:

• Monetary Exchange / Investment

• Trading as CFD’s

• Gold Exchange Traded Funds

• Jewelry

• Medicine

• Industry

• Electronics
 Monetary Exchange
Gold has been widely used throughout A World recognized asset
the world as money, for efficient indi-
rect exchange and to store wealth in “Financial Insurance” during a rough
hoards. For exchange purposes, mints economy
produce standardized gold bullion
coins, bars and other units of fixed Protection from inflation
weight and purity.

Gold has always played an important

role in the international monetary sys-
tem. Gold coins were first struck on the
order of King Croesus of Lydia
(Turkey), around 550 BC. They circulat-
ed in many countries before the intro-
duction of paper money. Once paper
money was introduced, currencies still
maintained an explicit link to gold.
 Trading as CFD’s
A gold CFD is a theoretical order to buy
or sell a certain amount of gold, and the
profit or loss on the CFD is determined
by the change in price of the gold. Gold
CFD’s are one of the most traded due to
high liquidity. There are standard sizes
of contract such as: 10 ounces or 100
ounces of gold and also min contracts at
1/10 of the standard size.

Whatever the size of the CFD contract,

the profit (or loss) that you would make
comes from the change in the value of
that amount of gold. The margin or
amount you need to buy the contract
with may be as little as 3% of the value.
You will be charged interest for each
day that you hold the CFD.
Gold Exchange Traded Funds (ETF)

Gold ETFs are a quick and easy way to Users of Gold ETFs tend to use them
gain exposure to gold providers includ- more as a shor t-term play.
ing iShares and ETF Securities offer Gold averaged $1 794/oz in the first
these listed tracker funds. Shares can be quarter 2021, down 4% from the previ-
bought and sold daily and the funds are ous three months, but still about 13%
backed by physical gold, unlike other above the level seen over the same peri-
exchange-traded commodities which od of last year.
tend to track futures contracts. Annual
management fees are about 0.4 per
cent.
ETF Worldwide Holdings
 What influences the Gold Price?
The price of Gold tends to increase in
times of crisis such as war and natural
disasters.

Bank failures can cause an increase in

the price of gold.

When the Real Estate market is low, oth-

er commodities such as gold and silver
tend to increase in value.

Supply and Demand

Dollar Strength
Central Banks and Mining companies
The economy
Charting Gold 1990 - Present Day

Gold has a history of maintaining and in- Central banks continue to add to their
creasing it’s value. It has appreciated and bullion reserves.
survived every single human event since
1968 and continues to hold it’s value. Proven hedge against inflation.

What will the next 10 years look like? Safe haven during times of uncertainty.
 Charting Gold 2021
Despite Gold losing value in the first
quarter of 2021, in recent weeks we
have seen a significant bullish movement
aligning the short and longer term trends.

2021 Low: $1676

2021 High: $1959

The forecast for 2021 says that according

to the consensus outlook from analysts
entering today’s precious metals price

forecast competition from the London

Bullion Market Association, the Gold price
will average $1974 per ounce across
2021, a rise of 11.5% from 2020’s
record high annual average.
Comparing Performance of Metals
This allows you to figure out how strong
Gold is when compared to it’s other neigh-
bouring precious metals.

It’s always a good idea to get an overall

view of how the precious metals sector is
doing as a whole.
 Making Sense of Value
So let’s take, for example, the price of
Gold at 1st January 2021:

$1900.87
The quoted price means that you could
BUY or SELL Gold for $1900.87 per
ounce.

If you were a buyer at $1900.87 and If you were a seller at $1900.87 and
price moved up to $1901.87 it would price moved up to $1899.87 it would
mean that you would earn $1 for every mean that you would earn $1 for every
contract that you had bought at contract that you had sold.
$1900.87
 Making Sense of Contracts
Now that we’ve looked at the value of Let us use an example:
Gold spot, let’s look at how you see the
value of your risk and potential profit. The price of XAU/USD is trading at
$1900 and we decide to BUY at Market
You can buy XAU/USD (Gold Spot) in with a Stop Loss at $1895. We also set
contracts, but to make it easier, we will a Take Profit target at $1910.50.
be looking at pip value!
In pip terms we have:
For a 10c price move on the Gold chart,
your position will essentially move 1 pip. Stop Loss = 50pips ($5.00)
Take Profit = 105pips ($10.50)
10c 1 pip
$1 10 pips
$10 100 pips
$100 1000pips
 Making Sense of Contracts
Let’s now look at an example to deter- In terms of pips, this equates to 98.6 pips
mine the risk and reward of a particular risk for 662.1 pips reward.
trade:

Profit will differ depending on Lot Size.

1 Microlot: Risk 98.6 pips @ 0.01 = $9.86
Reward 668.1 pips @ 0.01 = $66.20

1 Minilot: Risk 98.6 pips @ 0.10 = $98.60

Reward 668.1 pips @ 0.10 = $662.00

1 Lot : Risk 98.6 pips @ 1.00 = $986.00

Reward 668.1 pips @ 0.01 = $6620.00

10 Lots: Risk 98.6 pips @ 1.00 = $9860.00

Reward 668.1 pips @ 0.01 = $66200.00

Entry: $1773.29
Stop Loss: $1763.43 ($9.86 risk per/contract)
Take Profit: $1835.50 ($62.20 reward per contract)
 The Power of Risk/Reward
The current average daily range fill of
the XAU/USD is around 127 pips or
$12.70.

As you can see, the potential for larger

moves definitely sides with Gold. This
translates into larger R:R trades, and we
all know that having a large R:R gives
you a real step up in this game… Higher
volatility is key!
The greatest power in trading Gold Spot
lies in the volatility. Although the volatility
in the market as a whole has lessened
considerably, Gold still offers relatively
large moves on a daily basis.

The current average daily range fill of

the EUR/USD is around 46 pips.
 Multi-Timeframe Analysis
Gold is great when analysed on multiple 50 Period Simple Moving Average
timeframes.

A popular choice is the 5min/1hour Adding an analytical tool such as a 50

combination. Of course each and every period simple moving average when
timeframe has it’s own unique flow and using multi timeframe analysis can help
movement, but if utilized correctly,this filter out bad trades, as well as assist in
combination can be a powerful tool. identifying successful trades.
 XAU/USD… Is that it?
Can I only trade Gold in Dollar terms? Taking different currencies into account,
The answer is most certainly NO! no two charts will look the same, even
though they are all valuing Gold!
You can trade Gold in any currency
denomination. The Dollar, the Yen, the
Pound and even the Rand!!!

Here are just a small handful of Gold to

varied currency pairings.

XAU/USD

XAU/AUD

XAU/ZAR
This gives us many opportunities to trade
XAU/EUR Gold in multiple pairings.

XAU/JPY
 Volatility and Options
Always be aware of Volatility Make sure you watch securities that may
affect the Gold price.
Look at the Calls & Puts in the market
This includes the daily gold price itself
Higher Volatility means bigger moves in relation to the other precious metals,
Gold Options & expirations, Gold
Bigger profits Forwards, Gold Futures.
 The London Gold Fix
The gold fixing provides a recognized
rate that is used as a benchmark for
pricing the majority of gold products and
derivatives throughout the entire world’s
markets.

The London Gold Fixing or Gold Fix

is the setting of the price of Gold and is
determined twice each business day on
the London Bullion Market by the five
biggest Bullion Banks of London.
 Factors that Affect the Gold price
Demand and Supply

Inflation Rates

Government Reserves

Indian Jewellery Market

Import Duty

Currency Fluctuations

Global Economy

War
 Factsheet
The biggest nugget that has ever been When Franklin Roosevelt raised the price of
found was dug up in Australia and weighed gold from $20.67 to $35 in 1934, the dollar
approximately 90 kg. immediately lost 40% of it’s value.

Drinking molten gold mixed with crushed Around 161,000 tons of gold have been
emeralds was used as a treatment for the mined by man.
bubonic plaque during the 14th Century.
Switzerland was the last country whose cur-
In ancient Egypt, gold was considered the skin rency was tied to gold. 40% of a Swiss Franc
of the gods, particularly the Egyptian sun was backed by gold until Switzerland joined
god Ra. Only the pharaohs had access to the IMF in 1999.
Gold. Only later the chambers that held the
king’s sarcophagus was know as the House of South Africa happens to be the place where
Gold. two thirds of the gold comes from.

Over 400 references to gold are found in the India is the world’s largest consumer of gold
Bible, such as the instructions from God to today.
cover furniture in the tabernacle with Pure
Gold. Gold is also mentioned as one of the
gifts of the Magi.
 Closing Statement
This document should bring you up to speed with an overall view of the Gold Market and how it works. The intention was not to spend a lot of time on
any one thing, but to educate you enough to hopefully protect yourself. If you have any questions, or think we should add something to the
document, please contact us through the website www.forexvarsity.com and make a suggestion.

And always remember, the number one rule for successful traders…

“Plan your trade, and trade your plan”

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