To be more successful in gold trading, a good understanding of gold volatility would, more often than not, help gold traders make more informed decisions. Hence, you may want to check out this article to understand why gold volatility is so high.
When an asset is said to be highly volatile, it means that the asset’s price changes drastically over a short period of time in either direction. When there is inflation, there will be a drop in the value of currencies and that means gold’s dollar-value will increase.
In addition to that, gold supply is limited to however much exists on earth, unlike fiat currencies, which can be created at will. Hence, when the demand of gold increases and gold supply cannot keep up with it, it would also readily result in a surge in its prices.
Assets that experience more notable fluctuations in its prices tend to make its investors more nervous. Higher gold volatility means that it is more difficult to anticipate gold price levels in the future, thus it becomes harder for gold traders to make trading decisions.
However, gold being highly volatile would also mean more opportunities for gold traders to buy them cheaply and sell them at high prices. Instead of dropping the idea of gold trading because of its high volatility, consider reading up on gold trading or investing strategies and learn how you can reap off high profits.
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The two most popular strategies in extremely volatile markets, like the gold trading market, are the “straddle” and “strangle” options trading strategies.
A long “straddle” strategy is a seasoned strategy that involves buying both a call and put option for the underlying security with the same expiration date and strike price. When the volatility of the underlying security increases, the value of its call and put options increase if time to expiration and strike price remain constant. Traders will then be able to earn profits when the price of the security increases or drops by an amount greater than the premium (paid to get the option contract) from the strike price. As gold is highly volatile, gold traders can consider using this gold trading method.
The long “strangle” strategy also involves buying the call and put option for an underlying security at the same expiration date but at different strike prices instead. For “strangle”, the strike price of the call option is higher than the underlying asset’s current market price whereas the strike price of the put option is lower than the asset’s current market price. Unlike the “straddle” strategy, this strategy has a larger profit potential and is less costly but involves a greater risk. To earn profits from this strategy, the underlying asset has to make a bigger swing in its prices.
As the year is approaching the end, it is worthwhile to have a think about how gold prices might fluctuate in the next year.
In the earlier part of 2022, gold prices fell from a high of about $2,069.89 per ounce in March to an approximate amount of $1,770 per ounce, according to Reuters. As a result of this fall, an estimation that gold prices will continue to fall entering 2023 is made. The gold prices are expected to fall to an approximate average of $1,745 per ounce in 2023, slightly below current gold prices, due to high interest rates as well as a strong dollar.
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