Tips on How to Trade Gold at Forex Brokers

While Forex traders look for stable investments that can protect against inflation, market instability and other geopolitical factors that affect currency prices, gold has grown in popularity in recent years.

While Forex traders look for stable investments that can protect against inflation, market instability and other geopolitical factors that affect currency prices, gold has grown in popularity in recent years.

Traders can use gold as a way to hedge against other investments or as a safe haven that provides consistency over time and is more resistant to dramatic swings in valuation than many other currencies.

XAU/USD is one of several gold pairs that Forex brokers now offer, making it easier than ever to incorporate gold as part of your Forex trading strategy.

The stability of gold prices over time also makes it an important asset for inflationary periods such as we see today.

As the COVID-19 pandemic shakes the global economy, foreign governments and savvy currency traders are moving more money into gold as a hedge against losses resulting from inflation.

Economic practices such as printing more money can weaken global currencies, depreciating their value against stable assets like gold.

Gold's stability is largely due to its relatively fixed global volume, which cannot be dramatically increased in the same way that governments can print more paper money.

If you are eager to make better use of gold and capitalize on potential profit opportunities, here are trading tips to keep in mind.

Trading Gold: Day Trade with the New York Closing

Gold is a nearly 24-hour market, but peak liquidity is typically found during New York business hours. Whether you should target trades during or after New York trading hours depends on your goals.

While trading during peak activity hours offers high liquidity and low volatility, making it a good target for safe positions, after-hours trading can provide the extra volatility needed to execute trading strategies. scalping. At the same time, this volatility additional increases the relative risk of any trade.

Simplify analysis by focusing on past highs and lows

Since XAU/USD tends to trade in a range, one of the easiest strategies is to identify buy or sell opportunities at previous highs and lows for the pair to trade.

Traders can open a position in gold when the trend is up, for example, and target a previous high as its sell price or vice versa.

Since gold is a relatively stable asset, it is likely to reach these previous highs or lows over time. Note that this is not a good strategy for day trading, as it can take some time for these goals to be met, and range strategies generally do not offer quick profit opportunities like momentum strategies.

Still, it is a relatively low risk strategy designed to generate some profit from reliable XAU/USD price movement.

Consider the geopolitical implications of currencies

When political or economic uncertainty raises concerns about currency prices, gold can be a stable safe haven that protects your liquid assets.

Gold tends to be strongly correlated with the US Dollar as well as other stable currencies like the Japanese yen, and opening a position with XAU/USD can be a reliable way to protect your assets from unpredictable situations that affect other currency markets.

Use the Symmetrical Triangle for Analysis

While Forex traders look for stable investments that can protect against inflation, market instability and other geopolitical factors that affect currency prices, gold has grown in popularity in recent years.

 

The symmetrical triangle is a simple chart pattern that indicates a period of consolidation that could lead to a price breakout.

Symmetrical triangles show the convergence of two trend lines that advance on a similar slope but in opposite directions. As consolidation takes place, price movement in the pairing tightens, creating a potential trading opportunity on a breakout.

Most traders use the symmetrical triangle pattern along with other technical indicators such as volume or the relative strength index. When other indicators suggest a possible price breakout, the symmetrical triangle can add more confirmation and boost confidence when placing an order on XAU/USD.

an order of stop-loss can be placed just below the descending trend line after the two trend lines converge, and sell orders can be placed if the XAU/USD price is successfully reached.

Track industrial and commercial demand for gold

Growing market demand for gold may affect prices due to the fixed global supply of the material. Demand can come in many forms.

Certain industries may increase their gold purchases due to the material's role in consumer projects. Both the medical and technology industries, for example, use gold in certain products and solutions.

Consumer demand for gold jewelry can also affect prices. Consider global demand in foreign markets where gold jewelry is considered a luxury good and investment asset.

Monitor Central Bank purchases

Central banks tend to buy gold as a hedge when they are anticipating volatility in certain currencies.

Recently, for example, China and Russia have been making headlines for making significant investments in gold, which reflects their concern about the future price of the US dollar and the euro, among other major global currencies.

When central banks start buying gold in large quantities, it says two things to Forex traders.

First, governments are operating on the belief that the values ​​of major currencies could fall, which could encourage traders to shift a larger percentage of their investments into less volatile funds.

Second, increased central bank purchases often cause the price of gold to rise — at least in the short term. If gold prices start to rise, it could be an opportunity to make a quick profit.

Keep track of real interest rates

Gold has a well-documented correlation to real interest rates, with prices rising as interest rates fall and prices falling as interest rates rise.

The real interest rate is determined by subtracting the inflation rate from the nominal interest rate, resulting in a percentage gain or loss that takes inflation into account.

Historically, gold prices tend to rise when the real interest rate drops below 1%.

By looking at this interest rate as it changes over time, you can identify a strong buying opportunity — especially if you are looking for long-term trading opportunities.

In contrast, a real interest rate above 2% is likely to deplete the value of gold. Many experts recommend a sell in XAU/USD if the real interest rate reaches this threshold.

Moving Average Crossover

As gold prices tend to fluctuate within a range, they will cause different moving averages to intersect on Forex charts.

Many traders will buy whenever a short-term moving average crosses a long-term moving average.

For example, if a 20-day moving average crosses the 50-day moving average price point, this would signal a buying opportunity for long-term traders.

In the XAU chart below, for example, the 50-day moving average moves above the 100-day moving average in early April 2020 — just as the pandemic was starting to inflict significant damage on economies around the world.

Not surprisingly, this crossover of moving averages predicted a significant rise in the value of gold in the coming months:

While Forex traders look for stable investments that can protect against inflation, market instability and other geopolitical factors that affect currency prices, gold has grown in popularity in recent years.

The reverse is also true: if a short-term moving average were to fall below a long-term moving average, traders using this strategy would likely sell in anticipation of continued losses.

There's no exact science to defining the moving averages you should use to make these determinations, but it's nice to have a big gap between the two.

The 10-day and 20-day moving averages are not sufficiently distinct to offer value in this scenario, for example. At moving averages 10 and 60 days, however, are a popular pair for this strategy.

Pay attention to changes in gold production

In recent years, gold mining has not seen any dramatic changes.

It is not necessarily related to stagnant gold demand: while gold is in demand and has seen an increase in overall mining output over the past decade, current gold mining efforts face higher costs due to challenges in accessing underground reserves. gold in hard-to-reach places.

The most accessible gold reserves — at least those that are currently known — have already been mined and put into global supply. The remaining gold reserves represent much more expensive mining operations, which diminishes the profit potential for mining companies.

But reduced production is not an indication that gold is about to fall. In fact, the opposite is true: stable gold production could squeeze global demand and lead to higher prices, especially if central banks and other common gold buyers start looking for this asset.

Summarizing about trading gold

Although the price of gold is affected by factors other than typical currencies Forex , many of the Forex currency valuation rules still apply.

Forex traders should consider XAU/USD as a reliable safe haven for their investment activity, as well as a potential source of profit if they can effectively analyze gold price movements and develop a trading strategy to capitalize on this opportunity.

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