How to Trade Gold in Forex?
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Traditionally, trading gold was difficult because you had to purchase and sell the metal itself. Do you want to know how to trade gold in forex? ETFs for gold made trading gold even easier; gold was traded much like a stock. In addition, there followed futures and options, which allowed traders to speculate without keeping a safe full of bars, coins, or jewellery.
Gold trading today is similar to foreign exchange trading. However, with a spread-betting platform, retail investors have to decide whether to buy or sell gold based on their perception of the price going up or down.
Gold is attractive to some people because it is a physical asset instead of a number in a bank.
There are numerous strategies for trading gold, including studying the fundamental factors influencing supply and demand, studying the current positions of gold traders, and analysing gold price charts.
Trading Gold in Forex – What is it?
Using forex markets to gain exposure to gold is known as gold forex trading. Trading gold as a dollar-denominated currency pair or gold-linked pair is an alternative to buying and selling precious metals or speculating on their price using futures.
It’s no surprise that gold is still an internationally recognised part of the forex market, considering gold was historically used as a currency. XAU is the currency code for gold.
Currency traders can get exposure to gold and diversify their portfolios by trading gold in the forex market. Moreover, as a hedge against inflation, it’s a popular asset during global crises due to its stability.
When all investors get spooked and rush into the metal as a haven during market turmoil, the commodity attracts attention.
To protect themselves against inflationary losses, governments and traders moved money into gold during the Covid-19 pandemic.
Is it possible to trade gold on forex markets?
The spot price of gold is the US dollar price of one troy ounce of gold. Therefore, the XAU/USD currency pair can trade gold on forex markets. Alternatively, you can trade other currency pairs that have correlations with gold, such as the US dollar, Australian dollar, South African Rand, and Swiss franc.
Relationship of gold with different forex currencies
1. Gold and the US Dollar
Gold and the US dollar are traditionally inversely correlated. In periods of economic uncertainty, money has flowed back into gold from lower-risk assets (like forex) as investor optimism has grown.
Gold’s pricing is influenced by many factors other than the USD. Gold and USD don’t always move in lockstep, and sometimes the correlation isn’t as straightforward as it seems. Due to its best use as a global reserve currency, the US Dollar has been considered a haven, causing asset classes to move in tandem.
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2. Gold and the Australian Dollar
Since Australia is the third biggest gold producer globally, there is a close relationship between gold and the Australian dollar. Gold contributed about $5 billion to the Australian economy every year.
Therefore, gold correlates positively with the AUD/USD. Gold tends to go up when AUD/USD goes up. On the other hand, AUD/USD tends to fall when gold does. The AUD/USD, nominal exchange rate increased by 0.5% for every 1% rise in gold prices.
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3. Gold and the South African Rand
Due to South Africa’s large gold exports, the Rand is often correlated with gold. It’s therefore thought that when gold prices go up, the price of ZAR will increase.
Especially true when the Rand first entered circulation, this correlation exists as precious metals make up about 15% of the country’s total exports.
The USD/ZAR pair has an inverse relationship to the gold price, so you could trade this correlation through this pair.
Please create a free demo account or open an account with us to trade USD/ZAR.
4. Gold and the Swiss Franc
Because over 25% of gold reserves back Switzerland’s money, the Swiss franc has traditionally moved with gold. As a result, gold is often used as a proxy for the Swiss Franc.
We saw this relationship take root during the height of geopolitical tensions between the US and the Middle East in early 2020. Gold rallied at $1560 per troy ounce, and the franc followed, trading at an intraday high of $1.03.
You would be looking at the negative correlation between gold and the USD/CHF pair to trade gold: when gold prices rise, USD/CHF falls.
Create a risk-free demo account or open an account to trade USD/CHF.
Risk factors for gold forex
Before trading gold on the forex markets, there are a few factors you should consider:
- It is possible to enter positions with varying ease throughout the day, referred to as liquidity. As a result, gold pairs, except EUR/USD, GBP/USD, and USD/JPY, have higher average daily trading volumes than any other currency pair.
- Like any market, if there is an increase in demand and a decrease in supply, prices rise, and if supply increases and demand drops, prices fall. Jewellery production accounts for half of the global gold demand, while investors account for 40%.
- In addition to the market volatility, gold’s price is also volatile because it is used as a haven. As a result, gold becomes more popular when other risky assets don’t perform. In contrast, gold trading levels fall when risky assets perform well.
What is the best way to trade gold in forex?
You need to follow a few steps to trade gold in forex:
- Log in to your City Index account or create one
- Our currency pair search tool can help you find the currency pair you’re looking for
- Decide whether to buy or sell at the current price
- As necessary, attach stops and limits to your positions
- Keep a close eye on your trade and close it
- Become familiar with gold-linked currencies without taking any risks with a demo account.
Is day trading gold in forex possible?
In forex, you can day trade gold as long as the market conditions are good at the time – as long as there isn’t any period of economic uncertainty.
Strategies to take advantage of these moves tend to be more popular as XAU/USD trades in a range and reaches previous highs or lows over time.
Identifying these points of buy and sell enables you, for example, to buy gold when it’s trending up and sell it at a price that’s known as resistance. Day trading is a relatively high-risk strategy with little potential for a quick profit. However, this strategy is based on a more reliable XAU/USD price movement.
Trading times for gold on forex
Forex gold is a market that operates 24 hours a day, but its peak trading volume usually occurs between 1 pm and 10 pm (UTC) during New York trading hours.
The gold market is less volatile and more liquid during peak trading hours, making it a good target for safe-haven positions. Gold can also be traded in lower volume hours to get more volatility but less liquidity.
Beginner & advanced gold traders’ tips
Fundamental analysis for beginners calls for the consideration of one point in particular: is there a likelihood of a positive or negative outlook for the market? The gold price will likely fall if the former happens, and it will rise if the latter occurs. Trading gold thus requires this strategy.
However, the more experienced trader should consider what may happen to the dollar. Various studies have shown the dollar to be a haven in recent years, partly explaining the relatively stable gold price in Dollars.
You might consider buying gold if you believe, for example, that the geopolitical situation will worsen. Still, you might consider selling the Australian dollar against the US Dollar simultaneously.
Also, an advanced trader should monitor the gold jewellery demand. Gold jewellery is still considered an important long-term investment in India and China, and central banks’ purchases and sales of gold can also influence the price – all of which can affect the price of gold.
Supply figures from major producing companies like Barrick Gold and Newmont Mining should be kept in mind by advanced traders.
Trading gold follows the same rules as trading forex. A retail trader needs to be aware of their risk management, setting targets, and stopping when things do not go smoothly.
Therefore, we offer the following gold trading tips:
- Determine if the market is in “risk-on” or “risk-off” mode;
- Examine the US Dollar’s potential performance as well as the gold price;
- Analyse fundamentally, sentimentally, and technically;
- Be on the lookout for central bank purchases or sales;
- Think about gold jewellery’s demand;
- Analyse the industrial gold demand;
- Consider the supply situation as well.
Gold vs. forex: which one is best to invest in?
To better understand gold and forex trading, let’s explore some of their features on the following factors.
Due to gold’s scarcity and intrinsic value, it will never be out of fashion, but it may not always be at your price preference. It can not be easy to sell physical gold, but gold ETFs are easier to deal with. Likewise, currencies are easy to trade, like gold.
Access to the market: Currency traders have the advantage of accessing the market 24 hours a day, seven days a week.
Foreign currency traders can make immediate changes to their investment portfolios by taking advantage of foreign market activities to initiate swaps whenever they want. But, unfortunately, gold investors do not have easy access to the market.
One of the best advantages of trading in forex is the high degree of leverage available to traders. Leverage can be beneficial but must be handled carefully since it magnifies losses and gains.
Although many traders regard this as good, those who are un-experienced must be aware that even a small change in currency values can cause big changes in their portfolios. Moreover, as gold is a stable commodity, gold investing does not offer high leverage.
1. What is the minimum amount which you need to trade gold?
Gold futures contracts allow for the trading of gold without physically owning it. Instead, a day trader speculates on short-term price movements through electronic means. To trade gold funds or ETFs, you need to have a minimum balance of $25,000.
2. When should you trade gold in forex?
Events that affect the gold price should not be ignored. The best time to trade XAU/USD is during high trading volume hours, which can be justified by high volume. The busiest time for trading gold is between 3:00 pm and 11:00 pm (GMT+3).
3. Is it profitable to trade gold?
Its unique position within the entire world’s economic and political systems offers high liquidity and excellent opportunities in nearly all environments, whether the gold market behaves like a bull or a bear.
4. What is the process of trading gold?
Choose a gold market to trade in just three steps. First, gold stocks and ETFs can be selected from our gold markets or a selection of gold stocks. Invest wisely. Decide if you want to trade gold in the short term or the long term. Create an account.
5. Where can I buy gold stocks?
ETFs that track gold prices can be purchased. You can also purchase gold in the form of coins, bars, or bullion. It is best to open a discount brokerage account to invest in gold stocks and ETFs because it allows you to monitor your investments easily and save money on commissions and trading fees.
Four steps to profitably trade gold on the gold market. Buying and selling gold are mainly influenced by three polarities. First, familiarise yourself with the crowds involved with gold trading, hedging, and ownership.
Finally, pay attention to the long-term and short-term gold charts, keeping an eye on possible price levels. Last but not least, choose a site offering high liquidity, easy trade execution, and a high level of risk-taking.
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst