About Gold Trading

Gold Standard

“Gold Standard”refers to a monetary system in which a country's government allows its currency unit to be freely converted into fixed amounts of gold and vice versa. The exchange rate under the gold standard monetary system is determined by the economic difference for an ounce of gold between two currencies. The gold standard was mainly used from 1875 to 1914 and also during the interwar years.

Ounce

“Ounce” refers to the unit of measurement for a standardized contract. The trading of precious metals products is exclusively measured in troy ounces. All instances of “ounce” on this site refer to troy ounces. 1 troy ounce is approximately 31.1035g.

Margin

Margin is essentially collateral for a position. It allows traders to take on leveraged positions with a fraction of the equity necessary to fund the trade.

Buy

“Buy”refers to placing a position in anticipation for prices to move in an upward direction. Also known as “Going Long”, a buy position will only profit when prices go up.

Sell

“Sell” refers to placing a position in anticipation for prices to move in a downward direction. Also known as “Going Short”, a sell position will only profit when prices go down.

Stop/Loss

“Stop/Loss”refers to an order placed to liquidate an open position in order to prevent further losses when the price reaches a specified level. When the market price reaches a Stop/Loss (S/L) price, the trade system will automatically close the position.

Take/Profit

“Take/Profit (T/P)” refers to the price that an order must be closed out to realize an investor’s profit gain with respect to a trade position. When the market price reaches a Take/Profit (T/P) price, the trade system will automatically close the position. By limiting any further gains, the system is used to minimize any possible reversal price movements which may reduce profits for the investor.

Lock position

“Lock Position” refers to the case that a client holds the long position and short position of the same product at the same time in order to enforce risk control policies and improve the risk-resisting ability. 

Overnight Interest

“Overnight Interest” refers to the interests for these unsettled contracts which will be automatically carried over to the following days. The interest rates will be based on the market rates at the time when they are charged. If there are unsettled contracts in clients’ accounts after trading hours for Friday, clients will be charged overnight fees of 3 days for these unsettled contracts. (All interest rates are updated to clients on every Monday.)

Spread

“Bid-Ask Spread”refers to the price difference between an immediate sell (Bid) and an immediate buy (Ask) given by the client terminal to open a new position. 

Contract Unit

“Contract Unit” refers to the volume of a single contract lot Loco London Gold or Loco London Silver. The contract volume of Loco London Gold is 100 ounces/lot, while that of 1 lot Loco London Silver is 5,000 ounces/lot.

The composition and characteristics of the global gold investment market

If we regard one trading day as a whole trading time section, Australia gold market starts the trading most early, and the later gold trading will happen continuously on the gold market in different places. Even after the commodity exchange futures trading in New York is over, the investors can still do the trading on electronic trading platform, and after this the relay baton will be handed back to Australia gold market. This “24 hour continuous trading” characteristics makes gold market to be a cross - regional and cross - time investment market.

Pricing factors for gold price

Although gold can be regarded as a global commodity and currency, but since different gold market has different trading currency, weight and specifications, so there are different indications for the quote and trading price. When you compare the prices from different gold markets, the pricing currency, weight unit and specifications of gold quality should be considered and calculated.

Reference and influence between mutual prices

Gold trading in different gold markets are often different in the physical settlement specifications and settlement methods, in addition, the investment activities in individual gold markets are mainly dominated by the trading desire and behavior of the local market investors, so the gold market activities are not consistent with that of other places most of the time. But no matter which gold market, with which gold investment tools, or what are the differences in the contracts, gold is always gold, the factors that affect the price of gold itself will not change in any market. After removing this difference, the factors that affect the pricing of gold are basically related and the same, so when the gold price in a market rises, the gold price of other markets can not be affected. For example, in the gold trading hours of Hongkong,     if investors or gold traders are aware that the gold price of the Tokyo Futures Exchange is pushed up by buying, the transaction of the relevant investor or the quotation of the gold dealer will be affected and there will be an upward trend.

Gold market in Asia

The Asian market has two countries with the largest gold consumption in the world: India and China. The Asia Pacific region also has the major gold producing countries: China, Australia and Indonesia. The market characteristics of different countries and regions are: 

Australia: Trading are mainly for London gold spot contract.

Japan: Tokyo commodity exchange futures contracts

Hong Kong: Gold & Silver Exchange Society, London gold delivery

Singapore: regional gold center in Southeast Asia

China: mainly for domestic transactions and spot transactions

India: has the largest gold demand around the world.

The production and operation of gold ETF

Gold fund products - Gold ETF (exchange trade fund) is a kind of gold products generated in the form of exchange traded funds, which converts the gold transaction into a securitized fund product that can be traded on an exchange. The so-called securitization, is to change this fund - based investment tools into stocks, in a fixed unit, such as 1 board lot or 10 shares to buy, through the settlement like buying and selling shares. The financial rights and interests of these securitized assets are held after payment. While the gold ETF asset is gold, so holding gold ETF is equal to holding gold financial interests.

At present, the world's largest gold ETF, SPDR, which is listed in the United States, Singapore, Japan and Hongkong, is traded in these four exchanges. As of the end of March 2012, more than 1,286 hectares of gold had been held under the name of the fund.

Factors of affecting price

YearsAverage最低價最高價
2005475.6410.1541.0
2006622.7514.8730.7
2007732.7601.9845.6
2008855.8679.51032.0
20091011.7796.61226.7
20101236.91043.11430.6
20111614.21308.11920.0

Factors of affecting price

US dollar trend: gold is in the opposite direction with the US dollar, because the world ounce gold quotes are calculated in the United States dollar, when the dollar falls, the non-US currencies relative to the sale of gold will be cheaper; political situation: war is one of the strongest factors leading to rising gold prices, when a country is in chaos of war, the local currency value will drop, the people will buy gold with the local currency to preserve its value, so that the price of gold gets supported, therefore, gold is also known as safe haven currency and funds shelter; oil price: oil price is also one of the most influential factors of the rise and fall of gold, oil, this fuel is a global necessity, if oil prices rise, the production costs of factory rise relatively, the increased costs will be passed on to consumers eventually, as a result, the prices rise, the value of money is relatively lower at this time, this phenomenon is called inflation, if the inflation problem is serious, people will also buy gold for the preservation of its value.

Gold market participants

Gold markets have different participants in the transaction, and they participate in the gold market trading according to their own needs. Different gold market participants will have different effects on the gold market and gold prices.


Gold production company

Gold production companies will sell the gold bullion in the market after mining gold ore and refining into gold, so from the perspective of market participants, these gold companies are playing the role of sellers, to provide gold supply. However, with the expansion of the gold investment market and the emergence of derivative products, the trading activities of the gold companies have become diversified, they not only sell gold, but also have the buying gold trading activities. Although the transactions of these gold companies have become diversified, they never departed from the original aim, these transactions are carried out to sell their own gold that have been generated or will be generated.


Spot market sellers

This kind of transaction is the easiest to understand, that is, the gold companies have sufficient production funds and capacity, firstly, they refine the ore into gold bullion, and store bullion in warehouses, banks or clearing houses, and then wait for changes in the price of gold. When the price of gold reaches the price in the mind, they sell it, and hand over the gold bullion on the day of the settlement to collect the payment. If the gold market does not have the financing function and lack of gold derivatives to hedge, the traditional gold production companies will operate in this mode of spot trading.


Futures market seller

If the production capacity of a gold mining company is limited, or it has just started production, according to the above spot trading method, it must complete the gold production process firstly, cast gold bullion before selling. However, it can also make transactions through the gold futures contracts of the futures exchange, after selling the gold futures contracts, no matter how the price of gold fluctuations, the gold company has hedged the gold that it will produce, when the gold bullion is completed the real delivery at the expiration of the futures settlement, it can recover the amount sold at the hedged price.


Borrow gold firstly and sell it in the spot market

What a gold company can do is to borrow spot gold from a bank or bullion house firstly, getting the physical gold from the bank equals to holding the spot gold in hand, sell the gold at the market price or the right price to hedge and lock the sale price of gold, and then make the real delivery and collect the payment, which can be used for the production, finally, return the produced gold to the bank or bullion house.


Individual investor

As one of the most important participants in the gold market, individual investors can be divided into phisical gold investors and gold contract investors in terms of the current market structure. These individual investors have a very obvious influence to the gold price (especially short-term influence) , because the gold market is actually supported by these individual investors, plus the gold contract is processed in the form of cash deposits, when the market fluctuates, some investors will be eager to close the position, which will increase the fluctuation. Although the trading scale of these individual investors is relatively smaller, their influence to the market is no less than super investors and central bank when they enter the market all together.


 Bank and Bullion House

Gold was decoupled from the dollar in 1971, making the gold standard a history, the gold price began float freely and became a popular investment instrument. During a considerable period of time before and after the abolition of the gold standard, most gold trading, especially gold spot trading are finalized over the counter, the key players in this over the counter market are banks and bullion houses who owe gold business.


Bullion house means the company who specializes in gold trading as the name suggests, most of them specialize gold trading for very long time, the most powerful one are those who are active in London fix trading.

What is EA?

The so-called EA intelligent automatic trading system (hereinafter referred to as EA), is to write your own or someone else's trading strategy with special programming language (MQL) into a computer software program (Expert Advisor), and let the computer automatically manage your sales and trading according to your pre-set conditions, of course, the results of profit and loss depend on your design of the automatic trading system. At present, this is the most advanced and revolutionary change in the MT4 trading industry. The traders of many large companies on Wall Street in New York do not put their main energy and time on the artificial staring and manual operation, but to write and improve their own trading strategies constantly, and then compile these strategies into automated trading systems to allow the computer to execute transactions automatically.

Dow Theory

Dow Theory can be analyzed from three stages and three trends of the market. According to Dow Theory, each market has three stages as below:

The first stage: When the market sentiment and views have reached an extreme market conditions, it would develop to the foam or fear of one-sided bullish or bearish, the market speculation would be very fierce, once the market has slightly positive or negative news, it will affect the market to rise and fall sharply. If it is the bull market(rising market), investors will spend all their money on the market; if it is the bear market(falling market), investors will generally depressed and have no interest in the investment, and it is difficult for the market to operate; but in this stage, a small number of investors will predict the trend of the market from another perspective, they assume that the most extreme elements of the market(such as the best or worst) have been fully reflected, the market has the chance to reverse at this point, so they make the opposite deployment and engage in distribution or collection quietly.

The second stage: After periods of time, the market slowly falls or rises in silence, the general investors in the first stage have failed to expect, perceive and believe that the market has changed, until the market confirmed the decline or rise of the first stage, most investors begin to wake up and be aware that the basic factors have changed, so they join the ranks of selling or panic buying.

The third stage: The trend has developed to a mature stage; all negative or positive factors have been reflected. However, the market has been a prolonged period of decline or rise, investors began to feel pessimistic and optimistic about the continued decline or rise, so that the market reaction is greater than the economic performance, fear or excitement begins to form, and then returns to the first stage.

Eliot Wave Theory

Eliot (R.Elliott) wave theory is one of the most commonly used trend analysis tools, it is an analytical tool invented by Eliot, and it can predict when the trend will end at the time of establishment. It is a common prediction tool for investors.

Eliot was convinced that the cycle was a natural phenomenon, like the seasons (spring, summer, autumn and winter), day and night, sunny and rainy days, the full moon and the wane moon, good and bad phenomenon and so on, so he summed up, analyzed and researched the past economic data to verify the fluctuation and circulation form of the market price.

The market price circulates in the form of a wave, a cycle has eight basic waves, that is, impulse waves and adjust waves. Impulse wave is divided into five sub-wave structures, and adjust wave is divided into three sub-wave structures, the trend of market price is constantly duplicated by the same structure.

US unemployment rate

The unemployment rate refers to the ratio of the unemployed to the working population. If the value increases, indicating that the US labor market has slowed or deteriorated, which is unfavorable to the U.S. stock market.

Published Time: the first Friday of each month GMT time 12:30

Publication Agency: The US Bureau of Labor Statistics limits

Publication Address:http://www.bls.gov/

Federal Open Market Committee (FOMC) Meeting

The main task of FOMC meeting is to determine the US monetary policy, and to achieve the balance between economic growth and price stability through the regulation of monetary policy. The main content of the meeting is to determine the future monetary policy, not only to determine the interest, but also other policies. The meeting pays attention to the two issues faced by the economy: Growth and Inflation. If the interest rate is too high, economic growth is likely to slow down causing a recession; on the other hand, a low interest rate may make economic growth faster than the potential of the economy itself, causing inflation. So, the monetary policy objectives of FOMC meeting will affect the volatility of the overall financial market greatly. The meeting usually lasts one to two days. The main discussions are the economic operation conditions, financial market risk and monetary policy decisions; besides, the economists of FOMC show the research results each time.

US nonfarm payroll

US nonfarm payroll (i.e., US nonfarm payroll, non-farm employment) is the US non-agricultural population employment data, released by the US Department of Labor(DOL) once a month, reflecting the US economic trends, the good data show an upturn in the economy, while poor data indicate a downturn in the economy. Nonfarm payroll will affect the monetary policy of FOMC on the dollar, the economy is poor, FOMC will tend to cut interest rates, the dollar will depreciate; while the economy is good, FOMC will be inclined to raise interest rates, the dollar will be appreciating.

Usually, US nonfarm payroll is published on Friday night in the first week of each month.

Durable goods orders

Durable goods orders refer to the number of durable goods ordered in the market within a certain period. It includes non-residential fixed investment, advance durable goods orders-manufacturers' shipments, inventories and orders release. Durable goods refer to the goods that can last for three years and over three years.

This indicator is the order quantity statistics on large machinery and large equipment ordered by enterprises. The figures symbolize the degree of boom in the production activity over the following month. The small quantity of orders reflects that most companies are expected to have poor economic prospects and do not plan to expand their business, and thus, the employment rate, new job figures and gross national product will also be affected in the coming months. However, after the publication of the figures, there are often very different amendments to the information published, so the analysts should pay attention to the use of the most comprehensive information.

In the United States, the index is published by the U.S. Department of Commerce in the mid-to-late of every month, from the increase or decrease in the index, you can see the manufacturing production situation and determine the overall economic performance to predict and judge the trend of foreign exchange rate. When the durable goods orders fell sharply, it could reflect the weakness in the manufacturing industry, the weak manufacturing will increase the unemployment rate, and the economic performance is lighter, these are unfavorable to the country's currency; on the contrary, when the economy is buoyant, durable goods orders will increase as well, which will benefit the country's currency. 

Purchasing Managers Index(PMI)

Purchasing Managers Index(PMI) refers to the US Purchasing Managers Index, which is a "medical examination table" to measure the US manufacturing industry, also the situation index of the manufacturing industry in the eight aspects of production, new orders, commodity prices, inventory, employee, order delivery, new export orders and the import, and is an important subsidiary indicator among the economic leading indicators. Usually, PMI is closely related to the metal demand index, therefore, it can be regarded as an effective indicator of the change in the demand growth rate of metals.

The purchasing managers index(PMI) is expressed as a percentage, usually taking 50% as a demarcation point of the economic strength: When the index is higher than 50%, it is interpreted as a signal of economic expansion. When the index is lower than 50%, especially very close to 40%, there are worries about depression. And when the index is between 40% ~ 50%, it indicates that the manufacturing industry is in recession, but the overall economy is still expanding.

The number of initial unemployment benefits

The number of initial unemployment benefits mainly reflects the number of weekly initial unemployment benefits in the United States, that is, the new increasing unemployed population every week in the United States, it is published once a week, and it is usually the leading indicator to forecast the unemployment rate and non-farm employment report, so its importance is unspeakable. 

    Data source: U.S. Department of Labor(DOL)

    Release time: the data of last week will be released on every Thursday

    Indicator description:

It mainly reflects the increase or decrease of the unemployment directly, is the most time-efficient labor market indicator, and is also one of the indicators included in the leading indicators of the United States. In addition of observing weekly data changes, the medium and long-term changes as well as the expected gap should also be noted.

Consumer Price Index(CPI)

Consumer Price Index(CPI) is a generally compiled index all over the world, it can be used to analyze the basic dynamics of market prices, and it is an important basis for the government to formulate price policy and wage policy.

At the same time, CPI tracks the cost of living for a certain period to calculate inflation. The excessive increase of CPI indicates that inflation has become an economic destabilizing factor, the central bank will have the risk of tightening monetary policy and fiscal policy, which will result in uncertain economic outlook and affect the price of spot gold.

The roles of Consumer Price Index(CPI)

1.Reflect the inflation situation

2.Reflect the change in purchasing power of money

3.Reflect the impact on the actual wages of workers

Candlestick Chart

The drawing principle of candlestick chart is similar that of dotted line chart, it attaches the opening price data, so it is more complex than the dotted line chart, each candle in the following chart represents a trading session (for example, a minute, an hour, a day, a week, a month or a year). If:

· The closing price is higher than the opening price - that is, the rise, represented by white, called the Bullish Candle Stick.

· The closing price is lower than the opening price - that is, the fall, represented by black, called the Bearish Candle Stick.

· The highest point of the line is the highest price during the trading period, called the upper shadow.

· The lowest point of the line is the lowest price during the trading period, called the lower shadow.

Moving Average(MA)

MA is a very common analytical tool. The basic principle is to add the market prices of the past several days to the market price of the day, and then divide the total number of days to get the average, and painted on the chart. The purpose of the MA is to divide the volatility of the market price on the very day into the number of days, so that the analyst can exclude the impact of individual day price volatility, and thus gain a holistic basic trend.

MA days can be used for 5 days, 10 days, 20 days, 50 days, 180 days and 250 days or any random number of days, the market uses 5 days to represent a trading week, 20 days for a trading month and 250 days for a trading year. The less days of MA, the greater sensitivity and the more frequent buying and selling signals, the shortcomings are more volatility and greater trading signal noise. While the more days of MA, the lower sensitivity and the smoother volatility, the drawback is not able to send signals quickly to the market in real time. The following figure shows the MA line, the solid line is the short-term (20 days) moving average, the dotted line is the long-term (180 days) moving average.

Moving Average Convergence/Divergence(MACD)

Moving Average Convergence/Divergence(MACD), also known as a very common analysis tool, is a variant index developed from MA, which is used to display the different amplitude of moving MA in two given days (12 and 26 days).

The following chart is the illustration of MACD, in the application, the vertical solid line in the MACD chart is to express the two moving MA differences in a straight line, the difference between the two in the level of O on behalf of the market conditions upward, otherwise, downward, and then with the difference between the moving MA of 12 days and 26 days to calculate M1 and M2, the application principles are as follows:

·   When the calculated M1 (indicated by solid lines) down breaks M2 (indicated by a dotted line), it can be regarded as a sell signal;

·   When the calculated M1 (indicated by a solid line) up breaks M2 (indicated by a dotted line), it can be regarded as a buy signal.

Relative Strength Index(RSI)

Relative Strength Index(RSI) is also a trend indicator, and is probably the most popular technical analysis tool, which compares the average amplitude of rise and fall in the past several days, and sends oversold / overbought signals for the market prices.


The following chart is the illustration of RSI. RSI analysis is divided into three parts: the middle line is 50, which means that the market price will continue to operate in the current trend; the upper half of 70 or 80 or above (regarding as individual investors having different settings) called the overbought zone, when the market price reaches this zone, it is doubtful for the bearing capacity and the ability to climb of high price, because of the significant increases in the past period of time, at this point, there is a greater chance of adjustment; on the contrary, when RSI falls to 20 or 30(regarding as individual investors having different settings) called the oversold zone, because the market price has been continuous and obvious decline, the price reaches the zone, the rate of decline will relatively slow down, and will be more likely to rebound. In addition, RSI can also be used to confirm the rise and fall of market price; if the market prices are new highs / lows, RSI should also reach new highs / lows, otherwise, it is called divergence, therefore, the new highs / lows of the market price cannot be confirmed. The following figure shows an example of RSI indicators.

Bollinger Band(BB)

Bollinger Band(BB) is a technical index designed according to the standard deviation principle in statistics. The following chart is the illustration of Bollinger Band(BB), which mainly consists of upper, middle and lower three track lines, of which the upper and lower lines are the pressure line and support line of the market price respectively, and the 20 days moving average(MA) of the market prices is between the two lines, usually, the market price line moves in the strip zone composed of the upper and lower tracks, and automatically adjusts the position of the track with the changes of market prices. When the band is narrowed, indicating that the fierce market price fluctuations are likely to occur; and if the high and low points pass through the upper and lower lines, the market price immediately returns to the band to adjust or rebound.

Rate of Change(ROC)

The research of Rate of Change(ROC) focuses on the increase or decrease in the motivation of the market price changes, it is only necessary to compare the market price on the very day and those of several days ago, and observe the increase or decrease in the amplitude of the market prices, to understand the potential and sustainability of its internal motivation. The calculation method and principle of ROC is as follows:

The market price falls from high to low bit, and rises from low to high bit, which can be regarded as a swing habit; investors can use this amplitude of the market price swinging back and forth between the high and low bits to record the inertial fluctuation degree of ROC, and then set the inertial fluctuation range for normal fluctuation area, beyond the normal fluctuation zone as overbought zone and oversold area. When the overbought or oversold signals appear in ROC, you can deploy a strategy to close or short selling/ buy in.

Parabolic SAR(SAR)

Parabolic SAR(SAR) is trading standards following the trend of the market, utilizing the follow-up stop-loss position method to move the stop-loss position of market potential up or down, to protect the profits of investors. It is close to moving average(MA) in observation and application.

The following chart is the illustration of SAR, whose advantages are easy to use, and the signal is very simple and clear, when the parabolic turning point is upward, it means that the market potential will be good. On the contrary, when the parabolic turning point is downward, it means that the market potential will be bad. The application method is subject to the moving direction of parabolic turning point. On the one hand, when the parabolic turning point is moving upwards, it is in a positive market condition until it turns (change the parabolic turning point downwards). On the other hand, when the parabolic turning points is moving downwards, it means a bad market condition until it turns.

Commodity Channel Index(CCI)

CCI is specifically to measure whether the price is beyond the scope of the normal distribution, it is a kind of overbought and oversold indicator, but it has its own unique feature comparing with other overbought and oversold indicators. Most overbought and oversold indicators, such as KDJ, WR%, CCI and so on, have "0-100" upper and lower bounds, therefore, they are more applicable to study and judge the general market condition, but when they are applicable to the price trends for stocks that soared and tumbled in the short run, the phenomenon of index passivation may occur.

While CCI can fluctuate between positive infinity and minus infinity, so there will not be index passivation phenomenon, and it will help investors to better judge the market, especially those abnormal market condition that the stocks soar and tumbles in the short term. 

Standard Deviation(SD)

Standard Deviation(SD), mathematical symbol σ(sigma),is most frequently used in probability statistics as a measure of the degree of discretization of a set of values. The standard deviation is defined as the arithmetic square root of variance, which reflects the degree of discretization between the individuals in the group; the ratio of the standard deviation to the expected value is the standard deviation rate. The results of measuring the degree of distribution have two properties in principle:

1.    Nonnegative values (since it is a square root after rooting) ;

2.    Have the same unit as the measurement data (so that they can be compared).

There are some differences between the standard deviation of a total amount or that of a random variable, and the standard deviation of the sample number of a subset.

In simple terms, the standard deviation is a measurement of the degree to which a set of values is dispersed from the average. A larger standard deviation represents the greater difference between most of the values and their mean values; while a smaller standard deviation represents the values closer to the average.

Standard deviation is applied to the investment and can be used as an indicator of the stability in measuring returns. The larger standard deviation value represents the return away from the past average value, the return is less stable, and the risk is higher. On the contrary, the smaller standard deviation value represents that the return is more stable, and the risk is lower.