What effects the price of Gold?

Gold futures are one of my favorite things to trade. I prefer to sell premium as opposed to buy premium when I am trading gold options. Typically I use naked puts, naked calls or strangles. You can also use iron condors and credit spread is you prefer defined risk. Sometimes I will use spreads, but will typically sell those closer to the current price. With my undefined risk trades I typically trade much further away from the current price. I want time to decay to make my money, not the direction of Gold.

I usually trade the /GC futures or the GLD ETF. Many people do not have access to futures trading which makes GLD a good alternative. I like the premium better in /GC, so you you can trade the futures contract, that is what I would do.

What I want to discuss today is what effects the price of gold, not really my strategy for trading gold. Knowing what moves it helps determine the right strategy and how to implement it.

Gold is typically inversely related to the price of the U.S. Dollar. It is always good to compare the current Gold chart to a chart of the Dollar. It is also good to know if the Dollar is expected to gain in value or go down. One thing that can drive price of the Dollar up are interest rates. As interest rates go down the Dollar declines and Gold will start back up.

Economic uncertainty also increase the price of Gold. As the risk of a recession increases it is likely the price of Gold will also go up. Anytime the expected returns in bonds, equity and/or real estate fall, the price of Gold goes up.

These things are somewhat easy to predict. I can be more difficult to account for ETF’s investing in Gold and Gold production levels. You should always look out for these, but it isn’t always easy to find this data.

These are the fundamental things I try to keep in mind as I place new Gold trades. But, I also rely heavily on the charts. If I am dividend/long term investing I look at some fundamental data but most of my trading is based on technical analysis.

Taking Gold as an example, I believe I can see what is going on with the value of the Dollar and economic uncertainty just by watching price action. What I try to allow for when trading Gold is what I expect these things to look like in the next 90 days.

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