How To Trade Gold In Forex – Gold has grown in popularity over the past few years as forex traders look for stable investments that can hedge against inflation, market volatility and other geopolitical factors that affect currency prices. Traders can use gold as a hedge against other investments or as a safe haven that provides consistency over time and is more resistant to price swings than many other currencies. XAU/USD is one of the many gold pairs that forex brokers now offer, making it easier than ever to include gold as part of your forex trading strategy. The stability of gold prices over time also makes it an important asset in times of inflation, as we see today. As the COVID-19 pandemic shakes the global economy, foreign governments and savvy forex traders are moving more of their money into gold to protect against losses from inflation. Economic practices such as printing more money can weaken global currencies, devaluing their value relative to fixed assets such as gold. Gold’s stability is mostly due to its relatively stable global volume, which cannot be dramatically increased in the way that governments can print more paper money. If you want to make better use of gold and take advantage of potential profit opportunities, here are nine trading tips to keep in mind. 1. Day Trading with New York Close in Mind Gold is almost a 24-hour market, but peak liquidity is usually seen during New York trading hours. Whether you aim to trade during or after New York trading hours depends on your goals. While trading during peak activity offers high liquidity and low volatility, making them good targets for safe harbor positions, after-hours trading can provide the additional volatility needed to execute boiling strategies. At the same time, this additional volatility increases the relative risk of any trade. 2. Simplify analysis by targeting previous highs and lows Since XAU/USD tends to trade within a certain range, one of the easiest strategies is to identify buying or selling opportunities at previous highs and lows for the trading pair. Traders can, for example, open a position when gold is rising and target the previous high as the selling price, or vice versa. Since gold is a relatively stable asset, it may reach previous highs or lows over time. Note that this is not a good strategy for day trading, as it may take time to reach these targets, and range strategies typically do not offer the same quick profit opportunities as momentum strategies. Still, it’s a relatively low-risk strategy designed to take some profit from reliable XAU/USD price action. 3. Consider geopolitical influences on currencies When political or economic uncertainty creates concerns about currency prices, gold can be a stable safe haven protecting your liquid assets. Gold has a strong correlation with other stable currencies such as the US dollar as well as the Japanese yen, and opening a position in XAU/USD can be a safe way to protect your assets from the contingencies that affect other forex markets. 4. Using the Symmetrical Triangle for Analysis The symmetrical triangle is a simple chart example that shows a consolidation period that may lead to a price breakout. Symmetrical triangles consist of the convergence of two inclined lines with a similar slope but moving in opposite directions. As consolidation occurs, the price action in the pair becomes stronger, creating a potential trading opportunity during a breakout. Most traders use the symmetrical triangle pattern along with other technical indicators such as liquidity or relative strength index. When other indicators suggest a possible price break, a symmetrical triangle can add further confirmation and boost confidence when placing an order on XAU/USD. Once the two trend lines converge, a stop loss order can be placed just below the descending trend line and sell orders can be placed if the XAU/USD price successfully crosses. 5. Tracking industrial, commercial demand for gold An increase in market demand for gold can affect prices due to a stable global supply of the material. Demand can take many forms. Some industries may increase gold purchases due to the material’s role in consumer projects. For example, the medical and technology industries use gold in some products and solutions. Consumer demand for gold jewelry can also affect prices. Consider the global demand in foreign markets where gold jewelry is considered a luxury item and investment asset. 6. Monitoring Central Bank Purchases Central banks tend to buy gold as a hedge when they expect volatility in certain currencies. Recently, for example, China and Russia have made headlines for making significant investments in gold, reflecting concerns about the future value of the US dollar and the euro, among other major global currencies. When central banks start buying large amounts of gold, it tells forex traders two things. First, governments act on the belief that major currencies may fall in value, which may encourage traders to shift a larger percentage of their investments to less volatile funds. Second, an increase in central bank buying usually leads to an increase in the price of gold – at least in the short term. If gold prices start to rise, this could be an opportunity to make a quick profit. 7. Track Real Interest Rates Gold has a well-documented correlation with 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 an inflation-adjusted interest income or loss. Historically, gold prices tend to rise when real interest rates fall below 1%. By watching this interest rate change over time, you can identify a strong buying opportunity – especially if you’re looking for long-term trading opportunities. In contrast, a real interest rate above 2% can depress the value of gold. If the real interest rate reaches this level, many experts will recommend selling XAU/USD forward. 8. Target Moving Average Transformation Since gold prices tend to fluctuate within a certain range, different moving averages will cause the forex charts to move. Many traders will buy when the shorter-term moving average crosses the longer-term moving average. For example, if the 20-day moving average crosses the price point of the 50-day moving average, it will signal a buying opportunity for long-term traders. In the XAU chart below, for example, the 50-day moving average is moving above the 100-day moving average in early April 2020 – when the pandemic began to take a heavy toll on world economies. Not surprisingly, this moving average crossover predicts a significant increase in the value of gold over the next few months: The opposite is also true: If the short-term moving average were to fall below the longer-term moving average, traders would take advantage of it. the strategy is likely to sell in anticipation of continued losses. There’s no exact science on which moving averages you should use to make these decisions, but it’s good to have a wide gap between the two. The 10- and 20-day moving averages, for example, are not different enough to offer value in this scenario. However, the 10-day and 60-day moving averages are popular pairings for this strategy. 9. Focusing on changes in gold production Gold production has not seen any dramatic changes in the last few years. This is not necessarily due to stagnant demand for gold: Although there is demand for gold and there has been an overall increase in mining production over the past decade, today’s gold mining efforts face higher costs because underground gold reserves are harder to reach. those who places. Most accessible gold reserves—at least those currently known—have already been mined and put into global supply. The remaining gold reserves represent more expensive mining operations, which reduces the profit potential for mining enterprises. However, limited production is not a sign that gold is ready to decline. In fact, the opposite is true: stable gold production could suppress global demand and push prices higher, especially if central banks and other conventional buyers of gold begin to seek the asset. Conclusion Although the price of gold is affected by different factors than typical forex currencies, many rules for valuing forex currencies still apply. Forex traders should consider XAU/USD as a reliable safe haven for their investment activities, as well as a potential source of profit if they can effectively analyze the gold price movement and develop a trading strategy to take advantage of this opportunity. Watch our 1-hour webinar to learn more about gold trading:
The information provided here is for general information and educational purposes only. This is not intended and should not be construed as advice. If you act on such information, it is at your sole discretion and you shall not be liable in any way.
How To Trade Gold In Forex
CEO Limited, Graeme Watkins is more of a veteran of the FX and CFD market
Forex Gold Trading
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