How to Trade Gold’s Inflation Boost to Record Highs

October 29, 2021 11:55

If you’ve been tuning into any financial news, you will have noticed a huge increase in the term ‘inflation.’ Billionaire hedge fund manager Paul Tudor Jones says it is the biggest threat to the economy right now.  

Large investors typically buy gold to protect their portfolios during this period of time. The precious metal is widely seen as a hedge against inflation over the long term.  

It’s no surprise then that gold is already up around 8% from the lows of the year so far and 45% up over the last three years. But, many analysts believe it will not stop here and record highs could be on the cards very soon.  

Here’s how to try and capitalise on this potential move.  

Market: Gold
Symbol: GOLD or XAUUSD 
Account Option: Trade.MT5 Account
Date of Idea: 29 October 2021
Time Line: 6 - 12 months
Entry Level: $1,835
Target Level: $2,070
Stop Loss Level: $1,670
Position Size: Max 2%
Risk: High

* The Trade.MT5 account allows you to speculate on the price direction of commodities like gold using CFDs. This means you can trade long and short to potentially profit from rising and falling stock prices. Learn more about CFDs in this How to Trade CFDs article.

All trading is high risk and you can lose more than you risk on a trade. Never invest more than you can afford to lose as some trades will lose and some trades will win. Start small to understand your own risk tolerance levels or practice on a demo account first to build your knowledge before investing.

Source: Admirals Gold Contract Specification 

Why Invest in Gold? 

There are several reasons why gold could be an interesting market to focus on over the next six to twelve months.  

Reason 1: An Inflation Hedge 

According to research from the World Gold Council, gold is a proven long-term hedge against inflation but only over the long term. As the global economy recovers from the impact of the Covid-19 pandemic there are now pockets of very high inflation around the world.  

For example, the year on year inflation rate in the US for last month was 5.4%. The target rate of inflation from the Federal Reserve is 2%. If investors turn to gold once more it could lead to higher prices in the long term until central banks get inflation back in line with their targets.  

Reason 2: Year-End Seasonal Strength 

On a seasonal basis over the past 20 years, gold has tended to perform well towards the end of the year and especially into the New Year. Investors may consider positioning themselves earlier on which is why it’s a market to watch.  

Reason 3: Gold is Currently Testing Major Support 

From a technical analysis perspective gold is currently sitting at a major Fibonacci support level. The last impulse cycle higher started in August 2018 around $1,156 and ended in August 2020 around $2,069.  

Currently, the gold price has retraced 38.2% of this move higher. This number is considered to be of importance in the Fibonacci trading sequence. Interestingly, it’s where the recent selling has stopped and could be a level technical traders may consider building from.  

Reason 4: Central Banks are Buying More 

According to data from the World Gold Council, central banks bought 333.2 tons of gold in the first half of the year. That is 39% higher than the five year average for the same period of time.  

In particular, oil-rich nations have cashed in on the huge rise in oil prices by buying gold and topping up their reserves. A rebound in the global economy could see more emerging market countries also top up their gold reserves.  

In fact, HSBC estimates that buying is likely to increase year on year over the next three years which could lead to higher gold prices in the long-term.  

An Example Trading Idea for Gold  

An example trading idea for Gold could be as follows:  

  1. Buy the metal on a break above technical resistance at $1,835.    
  2. Target the record high at $2,070 as a minimum.   
  3. Place a protective stop loss at $1,670.   
  4. Keep your risk small at a maximum of 2% of your total account.   
  5. Time Line = 6 – 12 months  
  6. If you buy 0.1 lots of Gold (a contract size of 10 oz) then:  
  7. If target is reached = $2,350.00 profit.   
  8. If stop loss reached = $1,650.00 loss.   

Risk management is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade.  

The example figures above have been calculated using the Admirals Trading Calculator which enables you to view what your profit or loss could be based on and any commissions you need to pay on the numbers you input – a great tool for traders!   

Get 4 Weeks of Cashback when Trading Gold! 

Did you know that from the 1st November 2021, you will have 4 weeks to get up to 50% cashback of the typical spreads* you pay? The cashback percentage starts at 15% and grows each week up to 50% on Black Friday! *Terms and conditions apply.

Not only can you receive this cashback when trading gold but you can also receive it on other tradable instruments with Admirals such as the DAX40, DJI30, NQ100, EURUSD and USDJPY. 

How to Buy Gold in 4 Steps  

With Admirals, you can buy gold commission-free with only spreads and swaps payable depending on which account you use.  Here’s a step by step process on how to buy gold from the Trade.MT5 account. 

  1. Open an account with Admirals to access the Trader’s Room.   
  2. Click on Trade on one of your live accounts to open the web platform.   
  3. Search for Gold at the bottom of the Market Watch window and drag the symbol onto the chart.   
  4. Use the one-click trading feature, or right-click and open a trading ticket to input your trade size, stop loss and take profit level.   

Source: Admirals MetaTrader 5 Web

Past performance is not a reliable indicator of future results, or future performance.

Do You See Gold Moving Differently?  

Remember that all analytics and trading ideas are based on the personal view and experience of the author. If you believe there is a higher chance the gold price will lower, then you can also trade short from a CFD (Contracts for Difference) trading account which Admirals also provide. 

Prefer to Invest in Gold? 

If you prefer to invest in gold and want to try and capitalise on the performance of gold prices then you can do so with Admirals too!  

The Admirals Wallet Gold Account allows you to receive the performance of gold with zero holding costs. 

All you need to do is transfer your investment capital (US dollars, euros, British pounds, etc), to the gold account from the Admirals Trader’s Room and then convert it back whenever you are ready. 

Open an account today and see all the ways you can try to capitalise on the movement in gold today! 


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Jitanchandra Solanki
Jitanchandra Solanki Financial Markets Author, Admirals London

Jitanchandra is a financial markets author with more than 15 years experience trading currencies, indices and US equities. He is an accredited Market Technician with a BA Hons degree.