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The Surge in Gold Prices Poses a Risk to Market-Makers

Jun 29 2020, 03:53 PM (+06) | ATFX

The Surge in Gold Prices Poses a Risk to Market-Makers
Gold price volatility has re-emerged, presenting challenges for brokers that take the other side of their client’s bets.


Gold price volatility has re-emerged following a slumber since April 14. The move higher could present challenges for brokers that take the other side of their client’s bets. 

Client positioning from three well-established brokers shows that about 67% of retail clients are long the yellow metal. I think the retail demand for gold will increase given the headlines seen in the press. 

Traditionally, the leveraged retail trader tends to lean against trends, and the market-making broker (with an understanding of trends) can usually afford to not hedge their clients’ positions. This practice allows the market-making broker to generate more than the spread, as any of the client’s losses will result in profits for the broker. 

The issue for the broker starts when the clients are correctly positioned within the trend, and they begin to make money. In this situation, the broker will lose out if the clients start to book profits. Optimal money risk-management systems are, therefore vital to market-making brokers. 

The first quarter of 2020 was a record-breaking one for many brokers, as the coronavirus crisis triggered some robust trends in the markets. However, some established brokers faced challenges. Earlier this month, a well-known, listed broker saw its income drop from $249 million to $102.5 million as its clients traded exceptionally well. 


What is the outlook for gold prices?

The combination of higher COVID-19 cases in the USA, the ultra-loose monetary policy of central banks, and aggressive fiscal spending is a boon for gold investors. Investors flock to gold during a time of crisis, but they also tend to run to the safe-haven asset when central banks are slashing rates and printing more money than usual. 

Unfortunately, I think the COVID-19 crisis will not abate in the USA until the states that are leading the surge take action, and given the latest news, it seems that the hurdle of imposing strict social distancing measures is difficult to overcome. The states to watch are California, Texas, Florida, and Arizona, but more could follow. 

The relaxed monetary conditions were due to remain loose until the end of 2021 before the new wave of coronavirus cases hit the US, and the latest developments could easily delay any chance of normalisation to 2022.

Technically, the breach to the May 20 high triggered an ascending triangle pattern, with a target of $1,850. The price also triggered an inverse head and shoulders pattern with a target of $1,813. Both of these patterns will remain in play as long as the price trades above the June 19 low of $1,720.35. 

Written by Alejandro Zambrano, Global Chief Market Strategist, ATFX.




About ATFX A global award-winning forex broker, ATFX was established with the aim of providing a robust online trading platform for retail traders interested in trading, forex, cryptocurrency, precious metals and energy CFDs and. Today, the company, headed by an elite management team, has a global presence and offers a wide range of trading products. To ensure a seamless trading experience, the company offers MetaTrader 4, the most popular trading platform in the world, while connecting MT4 with the top liquidity providers with the latest bridging technologies. Due to its client-focus, ATFX also offers free access to market research, courses for all levels of trading, from novices to advanced levels, 24/5 live help and customer support, and highest level of protection for traders. Awards The outstanding performance of ATFX in our services have gained recognition from the market. During the year under review, the brand achieved over 20 international awards in 2018, included FX Broker of the Year, UK, Fastest Growing Forex Broker, Europe and Best Trader Education Service Provider. It regarding service, trading instruments, and the development in recognition of its commitments to excellent service to traders in corporate governance. Staffs are ATFX’s most valuable asset With close to 400 employees in offices around the globe, it aims to establish a strong footprint. ATFX now has websites in multiple languages tailored to each of the regions it serves and aims to provide the best-in-class products and services. From its user-friendly online trading platform to its multi-lingual customer support, offered by skilled and experienced professionals, ATFX takes pride in providing a safe and easy trading environment along with prompt help in the language that local traders (e.g. Europe, China, Southeast Asia …) are most comfortable in. Investors Education Following nearly 500 seminars that were successfully held during the last 12 months. ATFX has continued its principled commitment of educating its investors by conducting a series of seminars across the world, which are free and educate its participants about various trading techniques and helps learn the basics of risk management. It looks to provide a holistic service which includes the trading platform, along with a team of skilled and experienced professionals, allowing clients to gain access to comprehensive trading services. Website:www. Hotline: 0080 112 7901 [email protected] [email protected] Legal: ATFX is a trading name of AT Global Markets Limited (ATGM, registration number 24226 IBC 2017). ATGM is an International Business Company in Saint Vincent and the Grenadines. Registered address is : the Financial Services Centre, Stoney Ground, Kingstown, St.Vincent& the Grenadines.