How to trade gold ETFs day-to-day: top tips

By Saira Munsif Last updated Mar 6, 2023

Trading gold can be made easy with gold exchange-trade funds (ETFs). These funds have high liquidity, and unlike futures, they do not have an expiration date. Additionally, they offer diversity by allowing trade to invest in the price of gold or an ETF that relates to gold producers.

Gold, like any other asset, has long-term trends that attract traders at certain points. These trends provide ideal conditions for day trading. Knowing how to capitalize on these conditions can be incredibly advantageous for traders.

To make the most out of trading gold ETFs, traders must keep an eye on the trends and market conditions. By doing so, traders can spot favorable day-trading conditions and make informed decisions based on the market’s movements.

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KEY TAKEAWAYS

Gold moves in long-term trends, making it attractive to a large number of traders and providing favorable day-trading conditions.
For technical analysts, trading gold can make use of several types of gold-tracking securities including ETFs, unit investment trusts.
While ETFs track gold’s price indirectly via derivatives contracts held by the fund. Unit trusts such as GLD and IAU actually buy and hold physical gold.
Understanding the price behavior of these different instruments can help identify entry points and exits for short-term trades and confirm trends and reversals.

ETFs vs. Unit Trusts

When it comes to investing in gold trading online, investors may come across terms such as ETFs and unit trusts. However, it’s essential to understand the differences between them. While the SPDR Gold Trust (GLD) and iShares Gold Trust (IAU) are often referred to as ETFs, they are actually unit trusts. These unit investment trusts (UITs) own physical gold, whereas ETFs usually invest in products that track the price of gold, such as gold futures. For day-trading purposes, both trusts and ETFs can be suitable.

Among the various gold investment trusts, GLD and IAU are the most liquid and actively traded, with an average daily trading volume of 5.5 million and 4.7 million shares, respectively. The iShares Gold Trust is priced at about one-fifth the price of the SPDR Gold Trust. As a result, it tends to have smaller intraday movements in absolute dollar terms. However, its lower price allows for larger quantities to be traded. On the other hand, the price and volume of the SPDR Gold Trust make it more favorable for day trading.

For those interested in gold-miner ETFs, which purchase gold-miner stocks to reflect their performance, the VanEck Vectors Gold Miners ETF (GDX) is a popular choice. It has a daily trading volume of approximately 26.8 million shares. The VanEck Vectors Junior Gold Miners Fund (GDXJ) is another popular option, with about 5 million shares traded daily.

When to Day-Trade Gold Trusts and ETFs

If you’re a day trader, you know that volatility is your ally. Greater price movement and liquidity mean a better chance of making quick profits (or losses). To maximize your chances of success, focus on gold ETFs and trusts when their day-to-day prices are fluctuating at least 2%. You can apply a 14-day average true range (ATR) indicator to a gold daily chart, divide the current ATR value by the ETF’s or trust’s current price, and multiply the result by 100. If the resulting number isn’t above 2, then the market isn’t optimal for day-trading gold ETFs or trusts.

Gold Miner and Junior Gold Miner ETFs are generally more volatile than gold trusts. When the price of gold remains steady, the gold miners may offer slightly more day-trading opportunities due to their increased volatility.

The graph above shows an uptrend period where the day-to-day movement is typically less than 2%. This is a common occurrence in a trending market. Remember, day-trading depends on short-term volatility to be a profitable approach to trading. In this environment, there are likely to be fewer intraday opportunities and less potential for profits than when the ETF is more volatile. Therefore, it’s worth considering other options to find day-trading opportunities within the gold market.

Day-Trading Gold Miner ETFs and Gold Trusts

If you’re interested in day trading gold miner ETFs and gold trusts, there are certain conditions to look out for. Specifically, when the SPDR Gold Trust moves more than 2% in a day, it’s worth focusing on. However, if it moves less than 2%, it’s better to trade one of the gold-miner ETFs. Keep in mind that even during non-volatile times, you can still use the following method to trade gold trusts and ETFs.

In terms of the actual trading method, it’s important to only take trades in the direction of the trend. For an uptrend, you want to look for a price that has recently made a swing high, and then enter on a pullback. During the pullback, the price must pause for at least two or three price bars (on a one- or two-minute chart). This pause is a small consolidation where the price stops making progress to the downside and moves more laterally.

Day-Trading Gold Targets and Pitfalls

Day-trading in gold can be a profitable strategy, but it’s essential to understand the potential pitfalls. The objective of this approach is to capture trending moves in gold-related ETFs and trusts, particularly during times of adequate market volatility. If the market is not volatile enough, trends are likely to run out of steam and not reach the profit target.

To determine the profit target, traders should consider the daily volatility of the market. When daily volatility is around 2%, the profit target should be twice the risk. However, when volatility approaches 4% and there is a strong trend intraday and on the daily chart, traders should aim for a profit target that is three or possibly four times their risk.

A long trade is taken at $33.20/22 in the online gold trading today strategy example shown above. A stop is placed just below the pullback lows at 33.13/15, resulting in a risk of about 7 cents per share. Therefore, a profit target is set 14 cents above the entry price, which is two times the risk. During more volatile conditions, the profit target could be extended to 21 or 28 cents above the entry price, which is three or four times the risk, respectively.

What Are the Most Popular Gold ETFs to Trade?

Apart from investing in gold, there are gold mining ETFs that investors can consider. The VanEck Vectors Gold Miners ETF (GDX) and VanEck Vectors Junior Gold Miners Fund (GDXJ) are two examples of such funds. These ETFs provide exposure to gold mining companies and are excellent. Those who believe in the growth potential of the gold mining industry.

when it comes to trading gold ETFs, investors have a range of options available to them. Depending on their investment goals and risk tolerance, they can choose from funds that invest in physical gold or mining companies. The SPDR Gold Trust (GLD), iShares Gold Trust (IAU), and VanEck Vectors Gold Miners ETF (GDX). The VanEck Vectors Junior Gold Miners Fund (GDXJ) is some of the most popular and well-established ETFs in the gold market.

How Much Should I Risk on a Day Trade on a Gold ETF?

Determining the appropriate amount of risk to take on a day trade involving a Gold ETF can be a challenging task. However, as a general rule, it is advisable to target a risk level twice the amount you are willing to take. This calculation is based on the distance between the entry point and the stop-loss level.

In cases where market conditions are highly volatile, and you have entered the trade at a favorable point in the trend, it may be appropriate to consider a profit target that is three or four times your risk level. An even better approach would be to use a trailing stop loss. With the same distance as your initial stop-loss order. This strategy ensures that you maximize your profit potential while minimizing your potential losses.

Conclusion

Gold isn’t always popular, so when the price of gold is barely moving, day traders should leave gold ETFs and trusts alone. When volatility increases, though, day trading is warranted. Focus on trading with the trend. Wait for a pullback and a pause in price. The pause is what provides the trigger to enter the trade. When the price breaks out of the pause/consolidation back in the trending direction, take the trade. Place a stop just outside the pause in price.
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