Gold, as we all know, has been seen as a safe haven in times of market uncertainty. When people think of gold, they often picture shiny jewellery or stacks of bars stored in vaults. But do you know that when it is paired with the USD, the world's reserve currency, it becomes one of the most popular and actively traded instruments in the financial market?
No matter if you are just someone who is new to the forex or exploring the precious metal trading world, it is worth knowing that XAU/USD offers a unique blend of volatility, opportunity, and strategic depth. In this beginner-friendly guide, we will see what this pair is, why traders love it and how you can trade it smartly.
What is XAU/USD?
XAU/USD is the symbol for trading gold against the US dollar. If you understand the concept of currency pairs (base and quote), understanding this pair is simple. This trading pair represents the price of gold (XAU) quoted in US dollars (USD).
When you trade XAU/USD, it means:
- If you sell XAU/USD, then you are betting that the price of gold will go down in value compared to the USD.
- If you buy XAU/USD, then you are expecting gold to go up against the USD.
Here are the reasons why this pair is attractive to traders than the most traded forex pairs like EUR/USD or USD/JPY:
- High liquidity: Gold is one of the most traded assets globally.
- Volatility: Since both are highly volatile assets, there are frequent price movements, which means that there are more opportunities to gain profit.
- Global appeal: Gold is sensitive and reacts to inflation fears, central bank policies, international events, and more.
- Hedge against the dollar: Gold is that one asset that often rises when the dollar weakens and vice versa.
Beginner-Friendly Technical Analysis for XAU/USD
Technical analysis is the practice of using charts, indicators, and price patterns to make trading decisions. By using them, you can identify when to enter and exit trades based on market behaviour and not just economic news, be it about how to trade GBP/USD or XAU/USD.
Here is how you can get started with technical analysis for trading XAU/USD:
Read the Chart: trends and patterns
As a beginner, you can start by looking at the gold chart on a simple or user-friendly platform like MetaTrader 4.
Ask yourself:
- Is the price of fold going up (uptrend), going down (downtrend), or moving sideways (range)?
- Are there any support (price floors) or resistance (price ceilings) levels?
- Can you spot common patterns like double tops, triangles, or flags?
Try to identify the trend, as it will help you avoid going against the market.
Use Moving Averages
