Hello, fellow Forex traders!
On the market, in addition to currency pairs, there is the asset XAUUSD or, more simply, gold. If you have ever tried to trade it, you noticed how sharply your stop loss was knocked out)) Why does gold move so sharply? How can we use this to our advantage? A little history, important nuances of XAUUSD trading that are worth knowing, and... an interesting strategy specially selected for this instrument - in today’s material.
Secrets of trading Gold XAUUSD
Those who watch gold are well aware that in the second decade of the 21st century, the precious metal has ceased to be a safe haven, protecting investors' assets from inflation with an ever-increasing price. The long-term trend of increasing gold prices has led to four-digit price values, the widespread use of robots and strategies that were presented as a grail, in fact using averaging in the form of “stretching” the grids of buy orders or Martingale - increasing the position with increasing losses.
Since 2011, there has been a radical change in the market’s “trading regime” in terms of volatility, which was preceded by a global trend reversal and a subsequent wide flat. These movements turned gold into a speculative instrument and invalidated previous strategies.
Gold – from time immemorial to the present day
Gold as an asset has long been valuable to humanity, as evidenced by archaeological excavations during which gold jewelry and coins were found. 4-5 thousand years BC, of the seven first metals discovered by people, it was gold that received the status of precious, becoming the basis of the economy and monetary system.
From ancient times until the 19th century, the value of the coins of any state was determined not by the denomination, but by the content of gold, which in the era of “paper money” also served as the “gold standard”, abolished in 1971 in the USA. This was followed by global reform of the foreign exchange market, which led to the emergence of the Forex market after the Jamaican meeting of G7 leaders.
The consequences of the decision to value all currencies through the US dollar, made by the heads of the world's leading states in the town of Kingston, can be seen in the picture below. After the official ratification of the decoupling of currencies from the “gold standard” by the International Monetary Fund in 1978, the US Federal Reserve sharply reduced the share of gold backing of issued dollars. Since then, the number of unsecured printed bills has only grown.
It is also clear from the graph that the low share of “gold backing” in the national currency issue that existed in 1971 served as the main motive for the American government’s refusal to be tied to gold. At that time, in Europe there was a huge amount of cash dollars received by states during the Marshall Plan in the form of loans for the post-war reconstruction that took place by the middle of the 20th century.
European countries were ready to return not only loans, but also American paper money, demanding real precious metal in return.
These days there are calls for reform of the Forex market in the form of a return to the gold standard or the transfer of a sovereign currency to the blockchain.
Both plans are not feasible in the next few years, so it is worth looking for ways to trade gold today. Before listing the strategies, let’s look at the factors influencing the price of the precious metal.
Where can you trade
Dollar/ruble futures are traded on the Moscow Exchange (MICEX) 5 days a week (except Saturday and Sunday) from 10:00 to 23:50 Moscow time. The afternoon session time is 8 hours 45 minutes, i.e. from 10:00 to 18:45 Moscow time. The evening session lasts 5 hours 50 minutes, i.e. from 19:00 to 23:50 Moscow time.
1 futures contract is 1000 US dollars, and its price depends on the exchange rate at the time of the transaction. If, for example, the dollar exchange rate is 6,300 rubles, the cost of 1 futures contract will be 63,000 rubles. The guarantee for 1 contract will be 10% of its value, i.e. 6300 rub. If standard volatility reigns on the MICEX, the guarantee coverage will be 6%.
Gold mining
The earth's crust has a low content of precious metal, but gold mining is quite simple and cost-effective due to the metal's ability to concentrate in certain geographic locations and form clusters in the form of nuggets. It is carried out in an open way, in zones of geothermal post-magmatic release; the main reserves of gold ore are located closer to the center of the Earth due to the peculiarities of the origin of this metal.
In the 21st century, the first place in gold production is occupied by China, which in 2006 seized the palm from South Africa, which dropped to sixth place due to the depletion of deposits. Second place belongs to Australia; the continent has the largest proven reserves of this precious metal and can become a leader.
Russia closes this trio. An interesting fact is that the history of gold mining in our country dates back to the end of the 18th century. The first nuggets were found in the Urals after the death of Emperor Peter I, who laid the foundation for the development of mining in this region.
The yuan correlates with gold prices due to China's dominance in the volume of its production, and the exchange rate is influenced by the central banks of the countries with the largest reserves of this metal.
Strategic gold reserves of sovereign states
Despite the abolition of the gold standard, various countries still accumulate gold as a strategic reserve to support and stabilize the state's economy. The first place in terms of its savings belongs to the United States, followed by Germany by a wide margin, and the third and fourth places are shared by France and Italy, Russia closes the top five, which is already almost catching up with China.
The Central Bank is responsible for the monetary policy of the state, so gold is a tool for it, when using which the Regulator does not take into account the current exchange rate, fulfilling its own goals and objectives.
Transactions to replenish the gold fund are usually made on the over-the-counter market, but still affect the exchange rate of the metal and the value of the national currency, which falls due to increased emissions, due to which the state reserve increases. In the event of an economic crisis, these reserves are released onto international exchanges in order to increase the supply of foreign currency in the country, usually US dollars and euros.
What is the underlying asset
The exchange is a guarantor of the transaction, taking an insurance deposit from both sides of the transaction. The underlying assets can be:
- A specified number of shares. MICEX stands for the abbreviation “Moscow Interbank Currency Exchange”. The index of this exchange is a capitalization-weighted index that includes the most traded shares of domestic enterprises.
- Stock indices or index.
- Currency futures.
- Objects participating in trading on the exchange, for example, oil. This type of futures is known as commodity futures.
- Interest futures.
Industrial uses of gold
In addition to the actions of Central Banks, the XAUUSD rate is influenced by the demand for non-ferrous metals from industry. Gold is used in the consumer sector for jewelry, gold plating for premium products, and dental crowns in dentistry. Metal consumption volumes are growing along with the development of microelectronics associated with the production of computers and mobile gadgets, as well as the traditional use of gold in the chemical industry.
Traders can often observe a clear, strong correlation between the rise in prices of non-ferrous metals and gold during an economic boom and the fall due to a sharp collapse in demand during a crisis.
Example of a trade on XAUUSD
Let me give you an example of a real XAUUSD Forex transaction.
The conditions are as follows:
- Deposit (trader’s own funds) – $1000.
- Leverage provided by the broker: 1:100.
- Therefore, a trader can make a trade worth up to $100,000.
After analyzing the market situation, the trader decided to purchase 0.2 lots of gold at a price of $1,594.67. The deposit was 318.92. After the gold rate rose to 1624.01, the trader decided to sell the lot.
The profit was: 1624.01 – 1594.67 = 29.34*0.2*100= 586.8 dollars.
Global gold trend
Like any asset, the XAUUSD pair is subject to the influence of seasonality, recessions and increases in activity during the day, reacts to the release of macroeconomic statistics, etc. As for the global trend, on the scale of weekly candles over a period of thirty years it still looks growing and is in a temporary correction.
This is a topic of constant speculation by analysts, with growth forecasts “tens of times” becoming more frequent after 2021, associated with a sharp rise in gold at the time the Fed abandoned its zero-rate policy.
If we evaluate locally the period from the beginning of 2011, the naked eye can see a change in the range of fluctuations. The subsequent movement can be roughly divided into two approximately equal periods: the fall (until 2014) and the subsequent wide flat. Such long-term behavior of quotes allows us to deny with sufficient confidence the presence of any directional movement in the XAUUSD pair, which significantly downplays the role of a “safe haven”.
Many traders have stopped seeing opportunities to make money on gold amid nine years of growth in stock markets in developed countries. The same applies to the common man who chose digital currency in moments of crisis.
According to reports from the Finnish exchange of direct international exchanges LocalBitcoins, sharp surges in demand for cryptocurrency coincided with crises in Venezuela, Zimbabwe, India (currency reform), Turkey (US sanctions), South Korea (DPRK missile launches). An interesting fact: according to the latest October data from the service, Russia unexpectedly took first place in Bitcoin purchases.
The three-year flat extends within fairly wide boundaries, so by abandoning a unidirectional strategy (buying), you can confidently build speculative medium-term and short-term tactics. As can be seen from the daily candlestick chart, the gold market demonstrates fairly long periods of directional movement; for example, from the spring of 2021 to the end of summer there was a clear downtrend.
Broker selection and caution
Choosing the right broker is the main factor in successful Forex trading. Here the main selection criterion is its reputation.
Before concluding an agreement, read reviews about the company, find out how long it has been operating on the market. Companies that have been around for a long time are more trustworthy.
Expert opinion
Vladimir Silchenko
Private investor and stock market expert
Ask a Question
The second thing you should pay attention to is the regulator’s license. Brokers operating under licenses from Belize and other offshore islands should not be trusted. You should also be wary of companies registered in Russia, Cyprus and Malta. The most reliable brokers are Australia, Great Britain, Germany and Denmark.
Don’t forget to find out how funds are credited and withdrawn, what fees are charged for services, and the amount of leverage.
Features and Specifications of XAUUSD
In the Forex market, two types of gold designations are common in broker terminals - Gold or a more correct name - XAUUSD. This designation complies with the ISO 4217 standard, which regulates the three-letter code. According to this standard, the letter “X” is added in front of the designation of the metal Au, taken from the periodic table of chemical elements.
The gold rate currently stands at four digits, with two decimal places, reflecting the current value of a troy ounce expressed in US dollars.
The pip counting system in XAUUSD quotes is often controversial. To avoid confusion, take the value of the numbers after the decimal point as a two-digit number of points, i.e. a price change from 1270 to 1270.50 should be perceived as +50 points, and an increase to 1271 will mean an increase of 100 points.
A table of transactions of any system involving the desired instrument (in this case XAUUSD) on the myfxbook service can help you verify that the points for gold or any other non-standard instrument are counted correctly. By selecting the history of any monitoring transactions in this Forex account analysis service, a trader can see how points are actually calculated and the financial final result of closed XAUUSD positions.
The cost of a pip, depending on the lot size chosen by the trader, can be found in the “Trader Calculator” service from your broker, for example, from Alpari. When entering the market with a 0.1 Lot order, the trader will earn or lose $0.1 on each pip.
Pay attention to your broker's gold trading hours!
Some brokers close trading an hour before midnight. Traders often find out about this one Friday, holding the trade to close it at the end of the day, avoiding rolling the position over the weekend, suddenly discovering no price movement on the chart.
Before trading any instrument, including the XAUUSD pair, pay attention to the contract specification. This will provide information not only about the trading time, but also about the amount of the swap, which is added or subtracted when moving the transaction overnight, depending on the direction of the position.
A little about the Forex market
Precious metal trading on Forex is carried out around the clock, and quotes are fixed twice a day, as they are directly related to the fixing of the London Stock Exchange. This happens at 10:30 and 15:00 London time. How is gold designated? The accepted symbol for the precious metal in Forex is “XAU”. The price of gold is tied to the exchange rate of the American dollar, the behavior of which on the stock exchange is largely determined by the movement of gold quotations.
Trading the yellow precious metal on Forex has several advantages. The exchange is an online investment tool, that is, to carry out transactions, a novice player only needs a computer and Internet access. You can make transactions five days a week, around the clock, there are no time restrictions, since the exchange is classified as international. For beginners, a demo account is provided, which allows you to try yourself in the game on the stock exchange.
An important concept for Forex players is the presence of leverage, thanks to which the player can already receive a certain amount of profit with minimal costs. Trading gold on Forex is attractive because it brings real income. The trading platform is Russified, the contracts concluded have a ruble equivalent - all this contributes to the popularity of the exchange among Russian users.
Among the disadvantages of the site that stop novice players from moving forward are high broker spreads and low leverage compared to currency trading.
The participants in a transaction on the stock exchange are the seller and the buyer. The seller needs a platform and intermediary services to carry out trading operations. Brokers, which are just such intermediaries, provide the trader with a trading platform and leverage secured by funds. They also accept applications for the purchase of currency.
The success of gold trading on Forex directly depends on the choice of broker. How to make a choice? Preference should be given to reliable intermediaries with a good reputation. Before choosing a specific broker, it is recommended to collect information about it: how long it has been on the market, what spread and leverage conditions it offers, what reviews there are about it. It is best to choose a broker who has been on the market for more than one year and has already earned a good reputation.
The peculiarities of trading gold on the stock exchange are that the broker’s activities are regulated by the laws of another country. There are brokers in Forex whose activities are not regulated at all. What does this mean? Disputes and conflicts between the parties will be resolved in accordance with the laws of the country that governs the activities of your broker. It will not be possible to deal with unregulated intermediaries at all, since there are no grounds for this.
When choosing a broker, please note that not all brokers offer traders the opportunity to trade gold. Each intermediary sets its own spread and commission amount. The spread can be fixed or floating. The fixed spread will not change even if the market situation changes dramatically. If the market situation is calm, it is better to choose a floating spread, as it may decrease.
Gold on the stock exchange is sold and bought only through intermediaries; you should not “be fooled” by the offers of brokers offering incredible amounts of profit on the Forex market. As elsewhere, there are cases of fraud here. Not a single broker will work at a loss; he, like all other market participants, wants to make a profit.
If you have already understood the basic concepts of the Forex exchange and have the starting capital necessary to get started, then you can start making transactions on trading the yellow precious metal.
Medium-term and short-term periods of XAUUSD trading activity
To determine the days of the week and hours of active trading in the gold market, let’s turn to the “Forex Volatility Indicator”, which is located on our website in the drop-down menu of the “Tools” tab.
During the year, the highest average intraday volatility occurred in the morning hours of the Asian session, the opening of the London LSE, which traditionally trades large volumes of metals, and the beginning of the American session. The bars of the intraday volatility histogram clearly show that the most active trading period falls between 15:00 and 20:00 Moscow time. We will return to this point later.
The discovered trends make night trading strategies unsuitable for gold speculation and “shorten” the time to 20-00 Moscow time.
By setting the switch to 1 day mode, we find out the average value of intraday fluctuations. As can be seen from the chart, on average it is equal to the value of 1,300-1,500, which in terms of points, according to the principles described in the section of gold characteristics, is comparable to 130-150 points. This volatility is comparable to many major currency pairs.
The most volatile days are Tuesday and Wednesday, with the least activity observed on Monday.
On a historical scale, the peak of volatility occurred in 2011, where a global break in the growing trend occurred. This was followed by a peak after the announcement of the quantitative easing program QE, combined with a drop in interest rates of the Central Banks of developed countries to zero.
The last jump in this parameter occurred in 2021, coinciding with the first increase in the Fed rate above zero. The current flat corresponds to the minimum volatility values of 2017-2018, which once again confirms the hypothesis of the absence of a trend in gold put forward in the article.
Gold as an exchange asset
Gold trading is carried out on exchange and over-the-counter markets. Exchange trading involves gold bullion and various derivatives - futures and options. The most famous gold markets are:
Interesting: Support and resistance lines: review of the most profitable indicators
- London (LME - London Metal Exchange) . One of the oldest and most famous trading platforms in the world where transactions with precious metals are carried out. Conducts trading with standardized gold bars (350-430 troy ounces, purity no worse than 995). The prices of this particular market are used as a reference for comparisons and calculations, and are used as the basis for many long-term contracts
- Gold market in Zurich (Switzerland). In the middle of the last century, it was Switzerland that became the world center of gold trading. The scale of the turnover is evidenced by the facts: annually the country imports and exports 1.5-2 (often more) thousand tons of precious metal, while its own jewelry and watch industry uses no more than 25 tons. Swiss gold imports account for more than 70% of Western countries' production and over half of the world's. The main feature of this market is not the performance of intermediary operations, as on exchanges, but the purchase and then sale of gold.
- American market. The main role here is played by the Comex Exchange (a division of the New York Mercantile Exchange, NYMEX) and the IMM of the Chicago Mercantile Exchange (CME), on which more than 90% of gold futures and options are traded. Almost all dealers from Europe take part in the trading, conducting arbitrage transactions or hedging positions. Most of the transactions concluded are speculative, without actual delivery. Their significant volumes make it possible to create the necessary level of liquidity in the market.
There are several banks operating in the over-the-counter market that have received the authority to conduct transactions in gold. They process orders from sellers and buyers, forming the average market rate of gold based on the results of their comparison (this usually happens twice a day). In the over-the-counter market, the overwhelming majority of transactions are speculative in nature. Moreover, daily trading volumes here significantly exceed the turnover of the exchange market, having a decisive influence on the formation of the price of the precious metal.
Spot trading is conducted on the over-the-counter market, in which Forex traders can also participate.
Trading sessions
For Forex traders working in the over-the-counter market, gold trading, as with any currency pair, is available around the clock . Maximum activity occurs during opening hours of the London and New York stock exchanges. After the closure of New York, there is a lull in trading, which continues until the opening of large Asian sites.
Trader activity on precious metals exchanges
What does the gold rate depend on?
The behavior of a couple is significantly influenced by the main fundamental factors:
Interesting: Equity in Forex: how to use this indicator
- Level of interest rates;
- Information about GDP;
- Employment level, etc.
Moreover, the quotes reflect not only the strength or weakness of the quoted currency - the US dollar, but also the state of affairs in most developed countries. There is a general pattern - the deterioration of the economic situation leads to an increase in quotations, while positive processes in the economy contribute to a decline in gold prices.
Current market situation
For a long time, due to the unique properties of gold, the XAUUSD pair served as a reliable refuge for investors during crises in the global economy or in the affairs of individual states. At this time, market players abandoned risky assets, such as currencies, preferring to invest in reliable and constantly growing precious metals. As a result, a powerful upward trend was formed, the next wave of which began at the end of the last century.
As a result of the 2008 crisis, the demand for reliable assets increased manifold, which led to a sharp increase in the XAUUSD rate - inflating the “gold” bubble. In August 2011, after reaching historical highs of more than $1,900 per ounce, it burst - the rate showed an impressive decline with lows in the region of 1570, 1200 and 1050, respectively, in the spring of 2012, summer of 2013 and at the end of 2015.
The main factors behind the fall were the programs of quantitative easing and lowering interest rates, which were adopted by almost all leading countries in economic terms.
Only changes towards tightening monetary policy adopted by the US Federal Reserve were able to stop this decline, but the outlook today continues to remain uncertain.
XAUUSD Trading Strategies
One of the features of XAUUSD quote fluctuations, which can be taken as a basis when creating a strategy, is the rapid change of quotes within the range on any timeframe. The reason for this is the low liquidity of gold trading on the Forex market.
The fact is that the spot market is only available to professional investors due to the high margin requirements of the exchange. The main volumes are tied to it, while XAUUSD has a frankly weak order book, so almost any large transaction collects pending orders from a large number of levels.
A sharp rise in quotes and the subsequent response can serve as an excellent signal for a countertrend strategy
.
Candles that leave large tails in the direction of the local trend after closing are a reason to open a trade in the opposite direction.
The signal should be strengthened by a false breakout, in which the tail of the candle breaks the existing flat range. Working timeframe – H1.
The tail of the signal candle will determine the size of the stop loss, and the maximum range of the local trend (usually two or three candles) will determine the take profit level.
The impulsive nature of quote movement can be used in breakout and range breakout strategies. Basically, this tactic of work is designed for professionals who know how to determine the boundaries of a flat and place pending orders higher and lower. Momentum traders love gold for a reason)
In this case, the take level will be determined by the size of the flat range, and the stop will be located beyond one of its boundaries, opposite to the entry direction.
The best time for intraday trading is from 15-00 to 20-00 Moscow time. Once again, it is worth recalling that the concept of “night trading” in the form of flat strategies does not exist for gold.
Classic strategies for working with the trend are not available on small time frames; directional movements in gold are formed on daily candles. Before using them, you need to take into account the peculiarity of the high range of fluctuations; the tails of the candles require the use of a large stop size.
The same feature affects trading at levels that represent price zones; in the case of XAUUSD, a wider size is sufficient, unlike currency pairs.
To avoid “unnecessary” knocking out stop orders, you can use the “true volatility” ATR indicator to determine its size. This algorithm and various other rules for setting loss limits are described in detail in the topic “What you need to know about Stop Loss”.
Features of trading gold on the Forex market
And again, I welcome you, dear readers, to the pages of my blog. Today the topic for conversation has been chosen to be quite specific. Since I am going to move away with you a little from the problems of currency trading, and discuss the topic of gold trading on the Forex market. In this article, we will jointly try to examine the question of what features and options for trading precious metals exist, and which brokerage company is best suited for such trading. Let’s try to jointly formulate some useful tips on this type of trading. And the apotheosis of the material will be a description of the operation of an automatic trading strategy called Forex Gold Trader . which was created exclusively for gold trading.
Personally, I know of only two possibilities for trading gold online:
The first option is Forex trading, which provides both short-term and long-term investment options in precious metals.
The second option is to buy gold, or gold bars, through banks.
What I want to say is that trading in the Forex market with precious metals is identical to trading with any currency pair. To be precise, a trading instrument on the market is represented by the reverse type of quotes. Where the basic element is gold itself, and in the Forex market it goes under the designation XAU.
Directly in the MetaTrader trading terminal, gold is sold at a quote linked to the US dollar, and the pair looks like this: XAU/USD. Gold trading on the Forex market is available from almost every brokerage company. But there is one thing that is worth paying close attention to. After all, each broker sets its own spread for the XAU/USD pair. And this value can vary greatly among different brokers.
If, just for fun, you go through the websites of several brokerage companies, you will be able to see for yourself that gold trading offers can vary greatly. Starting directly from the size of the spread itself, ending with the size of the bonuses that are awarded to the trader if he replenishes his deposit. If you are interested in my opinion, then for me there are only two verified brokers for trading gold, these are the Alpari company and the Forex4you company.
We have discussed the topic of brokers, and we are moving further on the topic. Once a broker has been chosen, the question arises: how to directly trade in gold? And also profitable? I’ll tell you right away, my dear readers, I personally don’t have any specific trading strategy for gold. Perhaps this problem will even become a separate topic for an article. But only after I come across and test a worthwhile trading strategy. But, be that as it may, I still want to dwell on some advice of a fundamental nature that should be followed when trading gold on the Forex market.
It is worth knowing that gold has an inverse correlation to almost all major world currencies. What does this look like in the market? If suddenly the world's leading currencies begin to weaken, then most likely gold will rise in price. It is possible that, as an exception, it is worth paying attention to the Australian dollar, which is designated on Forex as AUD. There is a direct correlation here. Where gold is moving, the dollar from Australia is moving in that direction.
When trading gold on the Forex market, it may be worth considering the option of so-called news trading. The fact is that fundamental economic indicators have a strong influence on the XAU/USD pair. The strongest news that affects the price of gold is changes in interest rates by Central Banks, NONFarmPayrolls indicators, and the unemployment rate. The price of gold and inflation rates are also affected.
These are the two tips that can be given when trading gold on the Forex market, if you use manual trading. Now it's time to talk about an automatic trading strategy called Forex Gold Trader.
What is this advisor for? He is fully responsible for the automatic management of the investor's deposit when trading with precious metals. The main areas of work of the advisor are not only gold, but also silver. If we look at the functionality of the robot, we can also find access to the EUR/GBP currency pair, but the developers of the automatic trading strategy still recommend using it only in trading with precious metals.
The trading advisor we are considering is used on the MetaTrader4 trading platform. When opening an account, it is advisable to choose a leverage of at least 1:50. Since brokers can sometimes have different quotes, the advisor can be easily adapted to this. The working timeframe for the Expert Advisor is M15. You can trade on lower time intervals, but this will only bring an increase in false signals to enter the market.
American Gold Explosion Strategy
The strategy is very simple and, at the same time, effective.
On the hourly timeframe, the “inactive” segment of the session until 15-00 can be used as a range filter, identifying the flat price zones that had developed before this time and trading a classic breakout.
By placing orders on both sides after 14:00, having previously determined the take profit level equal to the size of the flat range, the trader can hold the deal until closed with a profit or exit it after 20:00, using the opposite border as a stop.
The rules of the strategy are extremely simple:
1) We determine the flat area at approximately 14:00 – 14:30 Moscow time;
2) We place pending orders Sell stop and Buy stop below and above the flat boundaries;
3) Stop loss order at the level of the opposite order, take profit equal to the size of the flat range;
4) A candle at 15:00 (sometimes a little earlier, sometimes a little later) activates our order, we wait for TP or SL.
5) At 20:00, if neither the take nor the stop loss were triggered, we close the position, regardless of the presence of profit/loss.
Of course, you can adjust this idea to suit your trading style. Perhaps we will look at this strategy in a separate review later.
