Whether you’re new to gold trading or have been successfully wheeling and dealing on the markets for years, it should come as no surprise that world events have a significant effect on the price of financial instruments like currencies. The economy of a given company can be buoyed or sunk by the financial and political factors within the country and abroad. Fundamental analysts observe economic pointers to predict future movements and inform their trading decisions.
Economic Policies by Country
The trade policies, budget, and currency distribution of each country combine to form something called economic policy. The government of each country determines all of these factors. When countries have well-balanced budgets that promote trade and look to grow the economy, the currency value will usually increase. If the budget is imbalanced and trade is stifled, the currency value will decrease. As a gold trader, pay attention when a new annual budget is announced, and you’ll know whether to pounce on a currency, or stay far away.
Budget Surpluses and Deficits
When a country earns more in tax income than it spends, it is said to have a budget surplus – the reverse is a budget deficit. Countries with surpluses are more likely to trade or lend money to other countries, and they have strong currencies on the market as a result.
There is a greater demand on the currencies of countries that are active in international trading. Remember, trends in stock and commodity trading also affect currencies, which has an impact on your gold trading strategy.
It’s also important to beware of inflation in a particular country. Inflation reduces the value of a currency in relation to others, which will obviously have a big effect on currency trading and thus gold trading.
Becoming a Fundamental Analyst
So how can you become a fundamental analyst? You don’t need a degree or years of practice. All you need to do is pick up a newspaper, watch the news, or bookmark a few informative websites and read them on a daily basis. It may seem overwhelming at first, but once you get a handle on the basics of the big players, all you need to do is observe how the markets change in relation to world events. Soon enough, you’ll be able to profit when predictions of your own payoff.
If you can get a good handle on how political events and economic changes affect the markets, you can be a successful gold trader. Are you ready to enhance your gold trading strategy with fundamental analysis?
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