Are you fascinated by the dazzling glitter of Gold and Silver?
Do you like the swift upward surge that Gold makes when it is in a great trend?
Do you love the potential it offers compared to other instruments of trading?
Then, commodity markets are for you!
While you love commodities, you have always wondered how to make money trading commodities.
Here’s how commodity markets work and how you can trade it:
1. Commodities is a global trade
- Compared to trading a stock like SBI or ONGC, commodities are a global market. When you trade commodities, you become a part of a global market.
- It is good because it cannot be manipulated. A small market limited to a country and that too a particular stock can be influenced in the way it moves at least for a few days.
- But commodities market cannot be manipulated, controlled, influenced. Imagine, how can anyone control the global buy and sell of Gold? Nope, it cannot be done.
- It means that you would be trading in a relatively transparent and manipulation-free market. It is important because if you are right in your trade, you will make money. If there’s no manipulation, it will work if you are right. It drastically improves your odds of making money.
- Moreover, it suits you if you understand the global events and economy better. For instance, if you understand how the US economy works, you would be in a much better position to trade Gold. You have never thought about your strength of understanding global markets, have you? Think about it!
- In all, it’s a global trade that you are entering and it means that you have to let go the limited perspective and embrace the global vision. You have to read and research regarding the way world economy and business moves. If you can do it well, you can make money.
- For instance, if you could understand early on when the trade war between the US and China started that it will strengthen the dollar, you can easily predict that Gold will crash from its $1300 sort of levels. Right now, Gold is trading at $1180 If you had done that, you had the opportunity to earn around $120 on one trade, one lot of Gold. It would mean many thousand in rupee terms.
- On the other hand, if you can discern that the trade conflict is about to be resolved soon and if you buy Gold at the current rate, you have the prospects of earning the same $120 on its way up.
- As you can see, if you understand global events and their impact on commodities, you can earn a lot of money on a single trade. Compared to what a stock can offer, Gold is still the boss!
2. Dollar Vs Gold and Silver
- Dollar and Gold share inverse correlation. If dollar goes up, Gold goes down. If dollar goes down, Gold goes up. That’s it.
- Gold has no independent way to go up or down. It is linked with dollar. So if you understand how dollar moves, you can make money trading Gold and Silver.
- All you need to understand is what moves dollar and accordingly make your trade in Gold and Silver. For instance, dollar is sensitive to US economy and its development. If the data suggests that US GDP is going to go down, guess what will happen to dollar? Naturally, it will go down. So Gold will go up.
- In the same way, if interest rates go up in the US, it will be positive for dollar and negative for Gold. For instance, FED has raised interest rates several times recently, you can see what it has done to dollar and how Gold has declined since then.
- Dollar can go up or down in many circumstances. US economy is measured on various parameters such as inflation, unemployment. Every time, data related to inflation or unemployment is out, it affects dollar and consequently Gold. If there is a pattern in the data that indicates a trend in inflation going up or unemployment going up or down, it has an impact on dollar and Gold.
- So if you want to accurately predict the movement in Gold, you need to watch the US economy well.
- Accidents. Yes, accidents are important. Every time, there is a little bit of a conflict, Gold simply takes off. Gold is the safe haven like Yen. So when there is a terrorist attack, Gold and Yen surge upwards like there is no tomorrow.
- So if you want to understand whether the world is ready to take risk or wants to run away from risk, look at USD/YEN and XAU/USD. It will tell you the whole story. On days when there is any kind of risk, Yen and Gold will not dominate US dollar.
- Therefore, if you want to trade Gold and Silver, you need to keep track of US economy, dollar, FED and any other accidents that happen.
3. Crude Oil
- Crude Oil is simpler than Gold and Silver because it is something that is a vital requirement across the world. If you understand demand and supply, you can work out for yourself, whether crude oil will go up or down.
- For instance, if you study the reports on the inventories of Crude Oil across the world, you will be able to easily predict the trend. If supply is not adequate, crude oil prices are heading upwards. If supply overshoots, crude oil is like to decline.
- On the other hand, you can also study the charts. If you look at the charts of 2014, you will notice that it had made a high of 120. To any sane person, that’s a stretch. A decline from there was due. If you study the chart, you can see the start of the downtrend. If you enter there, you can enjoy the full benefit of a downtrend. The downtrend starts in June 2014 from 120. By the time it is 2015, it goes down to 45. By the time it’s 2016, it goes down to 27. Imagine the kind of money you can make!
- In the same way, 27 is never justifiable as far the rate of Crude Oil is concerned. It is bound to bounce back. When you look at the same chart afterwards, you can see that it recovers from there. In 2017, it begins to recover and makes a spectacular rally from 45 to 80 in a short span of a year.
- In short, Crude Oil can rise and fall quickly. Based on inventories, it will continue to fluctuate between the highs and lows of the past one year.
- So if you are inclined towards Crude Oil, all you need to do is study the supply and demand and study the charts. This is enough to make phenomenal amount of money from Crude Oil.
How to Make an Actual Trade:
- Study the daily and weekly charts. Buy near support and sell near resistance.
- Moving averages don’t lie. If Gold closes below 200 day moving average, it’s time to sell it. Conversely, if it closes above 200 day moving average, it’s time to buy it.
- Keep track of any major events and align your strategy accordingly.
- Maintain your stoploss or hedge it properly. In the case of Gold, you can hedge it in some form with Silver. For instance, if you buy Gold Mini, you can sell 2-3 Silver Micro. If the trade goes wrong in Gold Mini, Silver Micro will support you.
- In Crude Oil, you cannot do much. If at all, you can buy or sell Crude Oil sensitive stocks to support you. So if your trade in Crude Oil goes wrong, the stocks will bring in some returns.
- In all, you need the same discipline of risk management that any other markets require.
Summing it Up
- Commodity markets can help you earn substantial amount of money with a good single trade. You can also lose a lot of money if you are sloppy and don’t follow the discipline of risk management.
- On the other hand, it takes away the boredom that stock markets bring. Stock markets can become dull for weeks altogether. Commodities are never inactive. Something or the other is happening.
- You will enjoy if you like analyzing global events and deriving insights from these events. You would be thrilled by a terrorist attack when you wake up one day or a new item saying that FED is going to raise interest rates.
- You will find a silver lining in any dark or negative event at the global level and convert it into a trading opportunity for you.
- While the world goes upside down, you will be proud of yourself the way you can buy Gold and make money. Even an economic crisis like 2008 will not be able to discourage you. In fact, that’s the kind of stuff you would be waiting for.
- At the first sign of an economic crisis, Gold will simply go through the roof. You would be able to spot this and ride the giant surge upwards. One trade will fetch you handsome returns that a Reliance Industries or SBI cannot.
- No wonder why you love commodities. Let the rest around you do their SIP, you will take the thrilling ride into commodities and earn mind-blowing returns instead!
If you follow the insights mentioned here, you can make a lot of money trading commodities!
Wish you happy trading!