How to Trade Gold’s Potential Surge on Technical Breakout

February 09, 2022 18:33

After gold’s 78% surge higher from August 2018 to its record high in August 2020, it has spent much of the past year and a half consolidating in a symmetrical triangle trading range.  

The two main forces currently affecting the gold price are related to the Federal Reserve interest rate policy and the demand for gold as a hedge against inflation.  

A shift in this balance is likely to cause a technical breakout in the gold price chart with the potential for gold to surge more than 10% towards its record high.  

Keep on reading to learn how to trade the potential of this gold price forecast. 

Market: Gold vs US Dollar
Trade.MT4 / Trade.MT5 Symbol: GOLD 
Date of Idea: 9 February 2022
Time Line: 3 - 4 weeks
Entry Level: 1,854.00
Stop Loss Level: 1,780.00 
Target Level: 1,950.00 
Position Size for Trade.MT4 / Trade.MT5 Account: Max 5%
Risk: High
  • The Trade.MT4 and Trade.MT5 accounts allow you to speculate on the price direction of metals such as gold using CFDs. This means you can trade long and short to potentially profit from rising and falling prices. Learn more about CFDs in this How to Trade CFDs article. 
  • The Invest.MT5 account allows you to buy real stocks and shares from 15 of the largest stock exchanges in the world. Investors may opt to purchase gold mining stocks or gold ETFs (exchange traded funds) which could benefit from higher gold prices.  

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. 

Why Invest in Gold? 

Gold is one of the oldest forms of currency in the world and its price is widely watched among financial traders and investors around the world. There are a variety of reasons why investors would choose to invest in gold.  

Gold’s Safe Haven Status 

Gold is often seen as a safe haven in times of economic uncertainty. The world’s most famous investor, Warren Buffett, said that “gold is a way of going long on fear.” 

With global stock markets experiencing significant declines at the start of the year, the demand for gold has increased. Investors tend to see gold as a safe haven due to its store of value – it is liquid to buy and sell instantly but it has a finite supply which makes it more valuable.  

Gold as an Inflation Hedge 

Research from the World Gold Council shows that gold can act as a hedge against inflation over the long term. With inflation running near record highs last year, it is expected the Federal Reserve will increase interest rates five times this year.  

However, according to investment bank UBS, there is “elevated demand [in gold] for portfolio hedges” citing concerns that higher interest rates will cause growth to falter. The bank’s average gold price forecast for this year is $1,925.  

Gold as a Long Term Investment 

Many investors may choose to invest in gold exchange traded funds (ETFs). These are funds that track the underlying price of gold by either holding physical gold in vaults or through purchasing gold futures contracts.  

You can learn more about these in the Complete Guide in How to Trade Futures

Investors may also choose to analyse the performance of gold mining stocks. As the price of gold rises this can translate into better profit margins for gold miners. However, like with any stock, there are other factors to take into consideration that can affect the bottom line.  

With Admirals you can trade gold futures contracts, gold mining stocks and gold exchange traded funds, or receive the performance of gold from an Admirals Wallet Gold account with zero holding costs.  

Gold for Short Term Speculation 

Due to gold’s volatility, there are traders who will use short term trading strategies to speculate on the price direction of gold. This can be done using CFDs (contracts for difference) which allow you to trade long and short and potentially profit from rising and falling prices.  

You can learn more about CFD trading strategies in this Trading Strategies Guide for 2022.  

Gold Price Forecast 2022 

Currently, the technical chart analysis for gold shows that its price is trading inside of a symmetrical triangle trading range. This is the price pattern showing a series of lower highs with a descending resistance line and higher lows with an ascending support line, as shown in the gold price chart below.  

Source: Admirals MetaTrader 5, GOLD, Weekly - Data range: from 15 Apr 2018 to 8 Feb 2022, performed on 8 Feb 2022 at 7:00 pm GMT. Please note: Past performance is not a reliable indicator of future results. Last five-year performance: 2021 = -3.51%, 2020 = +24.42%, 2019 = +18.87%, 2018 = -2.14%, 2017 = +13.68%.  

While the gold price has tried to break through this symmetrical triangle on multiple occasions in the past it has failed to continue to trend. We are now moving towards the smaller end of the symmetrical triangle price pattern where a breakout is more likely – especially with the increase in volatility expected this year.  

An Example Trading Idea for Gold CFDs

Based on the analysis above, if the price of gold can break through the top of the symmetrical triangle pattern and continue its long-term trend higher, an example trading idea for the Gold vs US dollar CFD could be as follows:  

  • Buy the Gold CFD on a break of the last weekly candle testing the top of the symmetrical triangle pattern at 1,854.00. 
  • Place a protective stop loss on a break of the same weekly candle’s low at 1,780.00. 
  • Place a target at the next major level of horizontal resistance around 1,950.00. 
  • Keep your risk small at a maximum of 5% of your total account.   
  • Time Line = 3 – 4 weeks.  
  • If you traded with a position size of 0.01 lots, then:  
    • If your target is reached = $96.00 profit    
    • If your stop loss is reached = -$74.00 loss 

It’s wise to remember that the price of gold is unlikely to go up in a straight line and it may even go much further down before it rises, especially considering how volatile gold price can be.  

Therefore, be sure to exercise good risk management which is one of the most important aspects of trading successfully. You should always know how much you could potentially lose on a trade and the risks involved.  

You can do this using the Admirals Trading Calculator for the Trade.MT4 account, as shown below: 

Source: Admirals Trading Calculator 

Another factor to consider is the cost of trading gold CFDs. These include: 

  • Spread. This is the difference between the buy price and the sell price of an instrument.  
    • The Admirals typical spread on gold is only 0.20 USD! 
  • Commission. This is the cost to make a buy and sell transaction.  
    • From the Admirals Trade.MT4 and Trade.MT5 account there is ZERO commission to pay to buy or sell gold CFDs.  
  • Swaps. This is the overnight fee to roll your position over to the next day.  
    • The current swap fee for the gold CFDs from the Trade.MT4 account is –16.17 for long positions and –14.92 for short positions.  

You can find more details from the Admirals Contract Specification page.  

How to Trade Gold CFDs in 4 Steps  

You can trade Gold CFDs from the Trade.MT4 or Trade.MT5 accounts using the four-step process outlined below.  

  1. Open an account with Admirals to access the Trader’s Room.   
  2. Click on Trade on one of your live or demo accounts to open the web platform or download the MetaTrader 4 or MetaTrader 5 desktop 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 Desktop. Past performance is not a reliable indicator of future results, or future performance. 

Click on the banner below to trade gold today!  ▼▼▼ 

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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INFORMATION ABOUT ANALYTICAL MATERIALS:   

The given data provides additional information regarding all analysis, estimates, prognosis, forecasts, market reviews, weekly outlooks or other similar assessments or information (hereinafter “Analysis”) published on the websites of Admirals’ investment firms operating under the Admirals trademark (hereinafter “Admirals”) Before making any investment decisions please pay close attention to the following:   

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  • The Analysis is prepared by an independent analyst, Jitan Solanki (analyst), (hereinafter “Author”) based on their personal estimations.    
  • Whilst every reasonable effort is taken to ensure that all sources of the content are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admirals does not guarantee the accuracy or completeness of any information contained within the Analysis.    
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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.