For many years, gold has served as a reliable store of value and one of the earliest forms of currency. It has limited practical use, but traders recognise it as a form of wealth like fiat currency. It is commonly known as the yellow metal and is a popular investment option in the financial markets. Many traders use it this way because it is a tangible asset that exists in the real world, rather than just numbers on a computer screen.
Gold is also relatively resistant to central banks or monetary policy, which speaks to its inherent value.
Why Trade Gold
The gold market has expanded in recent years, providing opportunities for individuals who previously may not have considered trading gold. Previously, you’d have to purchase physical gold bullion, coins, or other forms of the precious metal to own it. Even though you can still do that now, there are many different ways to trade gold online.
You can trade gold in various ways, including futures markets, spot and options, and exchange-traded funds (ETFs). You can also trade gold against the dollar and several other major currencies. And just like the forex market, gold and other precious metals have a lot of liquidity.
Learn all about the 10 gold ETFs and how to invest in them with our Academy article.
Gold has a greater daily trading volume than most currency pairs, except for majors like EURUSD, USDJPY, and GBPUSD. Because of its massive daily trading volume, the fees for trading XAUUSD are relatively low.
How to Invest in Gold
If you’re just getting started in the markets, here are several ways you can participate in trading gold:
- Gold Spot US Dollar or XAU/USD
- Gold Contract for Differences (CFDs)
- Gold ETFs
- Gold mining stocks
- Gold futures [1]
Although this list isn’t exhaustive, these are the most common ways to trade gold in the securities markets.
Sign up for a Vantage Live account and get started on your gold investment journey today.
6 Tips for Trading Gold XAU/USD CFD
With the diversification of gold markets, there are now many ways to trade gold online, including futures, spot, and options markets, exchange-traded funds (ETFs), and more. If you want to know how to trade XAUSD, here are some tips to keep in mind.
If you prefer structured alerts, learn how to trade gold signals step by step.
1. Pay Attention to Gold Purchases Made by Central Banks
All central banks own gold because of its direct relationship with banknotes and coins. Also, most central banks hold gold to diversify their countries’ financial risks. The reason they do this is to benefit from the stability that both gold and foreign currency reserves provide, together rather than apart.
So, when central banks anticipate currency instability, they often purchase gold to hedge that risk – a fundamental indicator. For this reason, look out for when central banks start buying massive quantities of gold, as it may suggest potential changes in gold price.
A good example is the Russian central bank’s 2022 announcement to buy gold from commercial banks at a fixed price to support the Russian Rouble [2].
Such a move signals two things:
First, a government assumes that the central currency will depreciate. For this reason, traders shift significant amounts of their investments to less volatile funds.
Second, such moves usually lead to higher gold prices, at least in the short term.
Making trades during such announcements lets you capitalise on the resulting volatility in the XAU/USD pair.
2. Observe the Effects of Geopolitics on Currencies
Political and economic instability worldwide often causes currency volatility. During such events, gold provides a haven for many other liquid assets.
If you open an XAU/USD position, you can potentially protect your assets from unforeseen conditions that can impact other currency markets. Gold has a strong relationship with the US dollar and other stable currencies, such as the Euro, the Japanese yen, and the GBP.
The Russian invasion of Ukraine is an excellent example. It caused the dollar to skyrocket, while the Russian ruble lost ground [3]. Another example, which happened in March 2023, highlights a global banking crisis caused by low interest rates, slowing economic growth, and risky lending practices [4]. Trading XAUUSD in this case could have allowed you to take advantage of opportunities in the market.
3. Target Previous Highs and Lows
The XAU/USD pair tends to follow trends and trade within a specific range. That provides you with an excellent opportunity to take advantage of buy and sell signals within the previous lows and highs.
When gold is trending upwards, target a historical previous price as your sell price, and when it trends downwards to an earlier low. Most of the time, it can return to its prior highs or lows.
Although targeting previous lows and highs is low risk, it isn’t ideal for day trading. It may take time for gold to hit old highs or lows, which takes away any opportunity for a quick upside.
4. Trade During New York Hours
Although gold trades happen around the clock, you’ll find most of the market liquidity during New York trading hours. The market’s liquidity and your trading goals will determine your strategy [5].
You can trade during peak hours where there’s plenty of liquidity and low volatility. However, if you’re scalping, trading after hours can provide the volatility you need to make positive gains with your strategy. But always remember that volatility carries an added risk of losses for any XAU/USD position you take.
5. Analyse with the Symmetrical Triangle
The symmetrical triangle is a straightforward chart pattern that shows a period of consolidation before a price breakout. When two trend lines with identical slopes but different directions converge, you have a symmetrical triangle [6].
This pattern indicates a period of indecision in the market as buyers and sellers struggle for control. Traders can use this pattern to identify potential breakouts and make informed trading decisions based on current price movements in the XAU/USD pair.
By monitoring trend lines and waiting for a breakout, traders can capitalise on potential opportunities and benefit from price movements.
When these two trendlines converge, price movements between the XAU/USD pair grow tighter and open up a window of opportunity for you to take advantage of a breakout.
Most of the time, you’ll use the symmetrical triangle pattern with other technical indicators, such as the Relative Strength Index (RSI).
When other indicators point to a possible price breakout, the symmetrical triangle can provide you with supporting confirmation and boost your confidence in taking an XAU/USD position.
Once the two trend lines converge, put a stop-loss order slightly below the descending trend line.
6. Follow Gold Demand for Industrial and Commercial Uses
A good example of gold demand comes from the jewellery industry. By tracking consumer demand for gold, we can gauge fluctuations in the global gold price. When global demand for gold jewellery increases, the cost of gold in the market rises correspondingly, and vice versa.
Other uses of gold can also affect its price in financial markets. For example, gold is a key component of smartphones and other electronics because of its efficient electricity conduction; an increase in demand for electronics drives up gold prices.
Final Thoughts
There’s plenty to watch out for when trading the XAU/USD CFD pair. Always look out for events that could change central bank behaviour and political situations that affect the price of gold. You can also tap other tips to use your capital or take advantage of market opportunities across different asset classes.
Past performance is not an indication of future results.
What is XAU/USD in trading?
XAU/USD is the symbol for gold priced in US dollars, where XAU represents one troy ounce of gold and USD is the US dollar. When you trade XAU/USD CFDs, you’re speculating on the price of gold vs the US dollar without owning physical gold. Traders can go long if they expect gold to rise, or short if they expect it to fall.
Is XAU/USD good for beginner traders?
XAU/USD can be attractive to beginners because it’s a well-known safe-haven asset with ample research and analysis available. However, gold CFDs are highly volatile and leveraged, so price swings can be sharp and losses can mount quickly if risk isn’t controlled. New traders should start with small position sizes, use stop-loss orders, and spend time on a demo account before trading XAU/USD with real funds.
What time is best to trade XAU/USD in South African time?
Many traders focus on XAU/USD during the London–New York session overlap, when liquidity and volatility are usually higher. For traders in South Africa, this typically falls in the late afternoon to early evening (around 3 pm–7 pm SAST), when primary US economic data is often released. However, the “best” time to trade gold CFDs vs the US dollar also depends on your strategy, schedule, and ability to monitor open positions.
How much margin do I need to trade 1 lot of XAU/USD?
The margin required to trade 1 lot of XAU/USD depends on your broker’s leverage, your account currency, and the current gold price. As a simple example, if 1 lot equals 100 ounces and gold is trading at $2,000 with 1:100 leverage, you’d need around $2,000 in margin to open the position, plus extra free margin to withstand price swings. Always check the contract specifications and margin calculator in your trading platform before opening any XAU/USD trade.
What moves the price of XAU/USD the most?
US interest rates and real yields, expectations for Federal Reserve policy, and inflation data mainly drive the XAU/USD price. Geopolitical risk, central bank gold purchases, changes in the US dollar, and overall risk sentiment in financial markets can also trigger strong moves in gold CFDs vs the US dollar. Over shorter time frames, key economic releases such as US CPI, NFP, and Fed speeches often trigger the largest spikes in XAU/USD volatility.
