How to profit from Gold with a Binary Option

By Vince Stanzione 06 September 2016

2 mins. to read

How to profit from Gold with a Binary Option

A binary option allows you to profit from a financial market going up, down or even sideways – all with a strictly limited risk and with small stakes. Unlike financial spreads or futures, you do not need to worry about margin calls and the most you can lose is the price of the option which is paid up front.

In this article, I will take a look at how you can profit from gold prices.

Going for gold

So far in 2016, gold and silver have been doing very well and in fact better than the S&P500. Gold is up around 23% against the S&P500 up 8%. Silver has done even better, up 36% year to date.

Gold has been freely trading since 1973 so we have a fair amount of data that we can look back on. Whilst history is no guarantee to the future we can look at monthly average returns to get an idea if odds are in our favour. September is the best month to be long on gold with an average return of 2% over the last 42 years. The worst month for gold is March which has lost around 0.5% on average.

Seasonal strength often occurs from September to January, beginning with the Indian festival season and ending with Chinese New Year. Demand from jewellery makers tends to build in the run up to December.

Over the last few months, gold has been going sideways but if we follow the seasonal pattern we should be in for the next up move.

Armed with this information we can use binary.com to profit from a higher price.

Making a stake

The example below is a RISE/FALL trade on gold using Binary.com

I have selected 28 days away and the spot at the time of taking this screen grab was 1325.71. The return on a higher trade is 87.1%. If I risk £53.44 and gold is higher than 1325.71 at expiration then I will be repaid £100 so my net profit would be £46.56. If I am wrong and gold is lower, I would lose my stake but no more. It is also possible to sell your trade back and a close out early price may be offered but I prefer to let my trades run to expiry.

Following the trend

As for the overall trend in gold we can use a simple moving average (SMA) to get an idea of the longer term trend. In the example below I am using a 100 day SMA – if the price is above the SMA we can say the trend is up and bullish and if below we can say the trend is down and bearish. Of course that is a very basic system but it can act as a good guide. You can see that gold had been in a down trend which is when highs are getting lower and lows are getting lower. Think of it as a boxer being knocked to the floor and taking longer to get up each time. Since February 2016 we have broken that down trend and gold is certainly looking better. There seems to be some resistance at 1380 and the metal could range between 1320 and 1380 before making its next up move.