Master Your Gold Trading Psychology

Gold is widely traded primarily because of its great investment properties. You can trade gold online or through a brick-and-mortar store. You can also invest in different gold instruments including gold coins, gold jewelry, gold stocks, or gold currency.  

Whichever medium you use to invest in gold, you can’t make money unless you understand the psychology of the market.

Understanding gold trading psychology is important if you want to grow your wealth through investments in precious metal.

Gold Trading Psychology: An Overview

Gold trading is similar to other types of trading, which requires calculated moves. You can’t be a successful trader if you rely on your emotions when trading. 

Most trading mistakes occur due to irrational actions that are spurred by fear or excitement. You need to make gold trading decisions based on technical and fundamental analysis, and not based on whims. 

Mastering the psychology of gold trading means that you should not let your emotions, anxiety, and frustration guide you in making investment decisions. You need to recognize and differentiate between thought patterns that are clouded by emotions and those that are an outcome of empirical analysis. 

Identify Patterns

dentification of patterns is fundamental to successful gold trading. You should know how to derive patterns through macroeconomic fundamental analysis and technical price action techniques. 

Pattern recognition through fundamental and technical analysis will help you determine if the gold market is driven through momentary events or long term investor sentiment. Every trading decision requires the identification of a pattern. In case there is no pattern, all types of trading will become pointless. There would be no basis for investment if every event that results in a change in gold price is unique. 

Understand Market Behavior

Every market behaves in a particular manner. The stock market is relatively more volatile than the gold market. This is because the demand and supply of stocks change more frequently.

In contrast, the gold market is more stable as the supply of gold is somewhat fixed. Gold cannot be produced as per the market demand. 

You can use various tools to understand the market sentiment. In his book The Diary of a Professional Commodity Trader, Peter Brandt has said that market patterns can be understood through chart configurations. 

Gold price charting can help in understanding the market sentiments. Using the chart, you can know whether the market sentiment is positive, negative, or neutral. It will allow you to know what moves can result in a favorable outcome. 

Using gold price charts, you can frame market sentiments across different time periods. It will allow you to know how the market behaves in response to different events. For instance, you can know how the gold market behaves during a financial crisis, economic recovery, and geopolitical events. 

Understanding of the Key Market Players

You need to understand the drivers and factors that determine the price of gold. Knowledge of the market players that determine the price of the precious metal is important to frame a hypothesis about the gold price.  

Monetary Policy

Governments are a major consumer of gold. So, the monetary policy of top gold consuming countries such as China, India, and the US affects the gold market sentiments.  The policy regarding gold reserves has a huge influence on gold prices. 

Government reports regarding the state of the economy also affect the gold market. For instance, the US Federal Open Market Committee (FOMC) holds meetings about once a month to discuss the state of the US and the future policy. 

If the FOMC meeting shows that the economy is in a bad shape or the fed rates will be reduced, the gold prices tend to rise. Most investors believe in the words of experts. The uncertainty and pessimism regarding the market will create a negative investor sentiment regarding the economy in general and the stock market in particular. 

In contrast, the gold price will react negatively if the FOMC reports paint a rosy picture of the economy. 

Demand of Precious Metal 

Demand for gold also influences the price of the precious metals.  The supply factor can be overlooked since it remains relatively fixed.   According to the World Gold Council, supply of gold had decreased by 6 percent falling to 2,192 trillion during Q2 2020 due to the coronavirus restrictions. 

Due to the massive cuts in rates and liquidity injections as a result of the COVID-19 pandemic, investors flock to gold. The price hike in 2020 was fueled by demands by Western investors who flocked to gold due to the uncertain economic and geopolitical output. 

Increase in demand with low or constrained supply pulls up the price of gold. In contrast, the low demand for precious metals pushes the price downwards. 

Gold demand increases due to political or economic uncertainties. Gold investment has been proved by many studies to be a good hedge against inflation, currency devaluation, and stock market downturns. Since the supply remains somewhat constant, the price of gold tends to rise with increased demand and falls due to reduced demand for the precious metal.

Global Economic Situation

investment in gold

The state of the economy also affects gold market behavior. Economic data regarding unemployment, wages, manufacturing activity, and GDP influences gold investor sentiments. The economic situation affects the government’s monetary policy as mentioned previously that in turn affects the gold prices. 

Strong economic situation with higher wages, low unemployment, increased manufacturing activity, and high GDP growth generally has a positive impact on gold prices. It will impact investor behavior due to the opportunity cost dynamics. 

Opportunity cost is present in every trading decision. This cost arises due to holding a particular investment instrument instead of another.  When the economy is strong, the opportunity cost of holding stocks is greater. In other words, investors would derive greater benefit if they invest in the stock market. 

The opposite happens when the economy is weak. Subpar economic performance creates a dovish investor sentiment on the stock market that buoys up the price of gold.  

Currency Changes


psychology of gold trading

Gold prices have been historically affected by movements in currency values. The price of gold moves in opposite direction to US currency.

Gold prices and US dollar have an inverse relationship since the gold is traded in greenback. 

A weaker dollar pushes the gold prices upwards. In contrast, a stronger dollar results in a decrease in gold prices. 


Uncertainty is one of the most important factors that affect investor behavior. Uncertainty in the market creates fear about the future. The uncertainty can be regarding the political situation or the general economy.

Political events such as Brexit, wars , and US presidential election generally create uncertainty.  Not knowing how the war will unfold, how the policy of the 46th president of the US will affect the economy, and whether the Brexit deal will be finalized creates global uncertainty. 

The stock market thrives on certainty. This is because uncertainty makes it difficult to rely on technical statistical tools. The psychological factor becomes prominent during uncertainty. Investors gravitate towards safe-haven investment instruments in such situations.

Gold has proved to be a reliable hedge during uncertain times. Various studies have found gold to be a good hedge that offset the losses due to adverse market conditions. 

Avoiding Trading Mistakes to Master Gold Trading Psychology

There are many mistakes that inexperienced gold traders make that prevent them from trading successfully in the gold market.

Here are common gold trading mistakes that you should avoid to successfully trade gold online.

1. Let Emotions Influence Decisions

You should never let your emotions influence the trading decisions . Unless you are scalping, you have no need to check the gold price charts every day. 

If you constantly check the prices, you may panic and make the wrong trading decision due to a sudden negative price movement. In contrast, a sudden increase in price may make you base your decisions on greed. 

2. Trying to Influence Prices

trading gold factor

George Soros is remembered for the fateful event when he made billions by betting against the Bank of England in 1992.

Some newbie investors try to emulate the trading strategy of Soros by opening too many positions against gold trading. They hope to reduce the average gold price through the trading strategy.

But this strategy is extremely risky and can result in massive losses. The truth is, average investors cannot influence gold prices.

Even large investors cannot influence the market price of gold. You should realize that gold is not a speculative investment instrument. The price is influenced by several different factors.

Sometimes, experienced traders make this mistake. The mistake happens not due to a lack of skills and knowledge but due to greed and overlooking the gold price psychology.

3. Overtrading in Gold

Many gold traders make the mistake of buying and selling gold at top and bottom. They pick the position even before the reversal of market positions.

Trading at top of bottom seldom results in the right decision. A better gold trading strategy is to wait and open the position once the gold prices have changed position.

No one can accurately predict the high and low point for gold. These are formed by different gold market variables that are difficult to predict for average investors.

4. Picking Tops or Bottoms

Many gold traders make the mistake of buying and selling gold at top and bottom. They pick the position even before the reversal of market positions. 

Trading at top of bottom seldom results in the right decision. A better gold trading strategy is to wait and open the position once the gold prices have changed position.  

No one can accurately predict the high and low point for gold. These are formed by different gold market variables that are difficult to predict for average investors. 

5. Average Down Strategy

online gold trading

Traders sometimes keep buying when the price of gold decreases to offset the loss when the gold trend moves in their direction. But this strategy is never effective since the price of gold usually continues in a particular direction for a long period. 

The strategy of buying gold against the first trade to offset the losses will backfire when the gold market moves against the second position. 

When you open different positions with the aim of offsetting the losses, you are basing your decision on emotions. Trading decisions based on emotions is seldom successful. Your trading decision should always be based on technical and fundamental analysis. 

The sixth sense or intuition never works in gold trading. You should rely on facts when making decisions about gold trading.

6. No Trading Strategy

You need to have a good trading strategy if you want to succeed in gold investing. You should have a clear idea about how much loss you can sustain by trading in gold. Moreover, you should know when to cash in when the market is moving in a positive direction. 

You should make your trading strategy based on the market signals. If there is no signal, you should not open an account. This simple strategy can help you avoid losses. 

The objective of gold trading is to make a profit. To achieve this goal you need to realize that the market is always right. You should understand the market psychology to make the right moves. 

Understanding the market psychology will help you make correct assumptions about the market movement. You will know when to buy, sell, and hold positions.

Final Remarks

Gold trading can help you double your wealth over the medium and long term. But if you don’t understand market psychology, you will see your investment grow in the opposite direction. 

Trading in gold requires both skill and patience. You should know when to make the move – and also when to stay still. By understanding the market sentiment, you can make winning moves and increase your wealth through gold investment. 

At the end of the day, gold investors are humans with emotions. Gaining an understanding of the technical and fundamental market sentiment that moves the prices is important to trade successfully in gold.

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