What is XAUUSD? Effective XAU/USD Trading Strategy

What is XAUUSD? XAUUSD, or gold, is one of the most sought-after assets in the Forex market recently. As you may know, the Covid-19 pandemic left a severe economic crisis both domestically and internationally. However, gold prices continued to rise during this period, making gold’s appeal in Forex never fade. Yet, for newbie traders, it can be difficult to differentiate and trade XAUUSD the same way as AUDUSD. Let’s analyze what XAUUSD is and forecast the XAUUSD trend with FOREX!

What is XAUUSD? How much is 1 lot of XAUUSD? How much is 1 pip of XAUUSD? How many ounces is 1 lot?

Many brokers use the symbol GOLD, while others list it as XAUUSD. This can confuse new traders, making it unclear what the gold price is when trading. So, what exactly is XAUUSD? Additionally, to quickly calculate profits when placing an order and deciding whether to trade or not, traders should also know how much 1 lot and 1 pip of XAUUSD are.

In today’s article, FOREX will clarify all the details related to XAUUSD so that traders have a more accurate understanding and can trade and invest more easily.

What is XAUUSD?

In the Forex market, gold is symbolized by XAU. The most common and frequently traded gold price is the exchange rate of gold to the dollar, represented by the currency pair XAU/USD, which shows the price of gold in terms of the US dollar.

Specifically:

• AU stands for gold in Latin
• X is a suffix that can represent Forex in currency pairs
• XAU is gold in Forex
• USD stands for the US Dollar => XAUUSD is a quote for the price of gold compared to the US dollar.

Apart from gold being priced in US dollars, some brokers price gold in other currencies, most commonly EUR and GBP, represented as XAUEUR and XAUGBP, respectively. However, when we talk about gold in Forex, we are generally referring to the XAUUSD pair.

1 lot XAUUSD and 1 pip XAUUSD is how much?

When trading 1 standard lot of gold (1 lot XAUUSD), it means you are buying 100 ounces (oz) of gold. Therefore, for 1 pip movement in XAUUSD (= 0.01 price step), you will receive 1 USD. For example:

• You buy 1 lot XAUUSD = 100 oz of gold -> If gold is priced at 1535.00 and increases to 1535.05, (equivalent to 5 pips XAUUSD), you will get 5 USD.
• You buy 1 lot XAUUSD = 100 oz of gold -> If gold is priced at 1527.10 and increases to 1527.20, (equivalent to 10 pips XAUUSD), you will get 10 USD.

In summary:

• 1 lot XAUUSD (or 1 standard lot of gold) = 100 ounces
• 1 mini lot XAUUSD (0.1 standard lot) = 10 ounces
• 1 micro lot XAUUSD (0.01 standard lot) = 1 ounce
• 1 pip XAUUSD (1 pip standard gold) based on 1 standard lot = 1 USD
• 1 pip XAUUSD (1 pip standard gold) based on 1 mini lot = 0.1 USD
• 1 pip XAUUSD (1 pip standard gold) based on 1 micro lot = 0.01 USD

How many ounces is 1 lot?

In case some Forex brokers do not use ounces, you can convert as follows:

• 1 ounce XAUUSD = 100 units or 1 mini lot with a pip value of 0.01 USD.
• 10 ounces XAUUSD = 10,000 units or 1 mini lot with a pip value of 0.1 USD.
• 100 ounces XAUUSD = 100,000 units or 1 standard lot with a pip value of 1 USD.

Example: £50000 / 1293.40 / 100 oz = 0.38 lot.

Analysis of XAUUSD – 6 factors affecting this currency pair

Many factors influence the fluctuation of gold prices worldwide, especially some key factors such as the US dollar’s value, the policies of major central banks around the world (like the Federal Reserve (FED)), supply-demand relationships, the gold production and processing industry, real interest rates, inflation, and economic and political crises.

Therefore, for success, gold traders on Forex platforms need to understand these factors to analyze and predict the future trends of the XAUUSD currency pair to a certain degree.

Monetary policy and FED speeches

In general, the biggest impact on gold prices is monetary policy, controlled by the US Federal Reserve (FED). Interest rates have a large impact on gold prices due to a factor called “opportunity cost.” Opportunity cost is the cost of giving up your money to invest in a different risky asset.

Therefore, sometimes you invest at a 3% annual return, but inflation is 4% annually, which gives you nominal gains but real losses. Or, initially, you invest at a 5% return, but the bank interest rate is 7%.

In this case, even though the yield is 0%, gold still becomes an attractive investment opportunity due to the low opportunity cost. In other words, investors will invest more in gold if interest rates in other investment channels are low, and vice versa.

Comments from the FED can also affect the gold market. In the US, the FOMC committee meets approximately every six weeks to discuss the state of the US economy and make decisions regarding monetary policy. Gold prices may decrease if the FOMC stance suggests interest rates may rise soon. However, gold prices may increase if the FOMC confirms that the interest rate plan remains unchanged.

Economic data

Another factor that drives gold prices higher is US economic data, such as employment reports, wage data, manufacturing data, and broader economic data like GDP growth, which impacts the Federal Reserve’s monetary policy decisions, in turn affecting gold prices.

With a stronger US economy, low unemployment rates, job growth, increased production, and GDP growth over 2% – this represents a trend that could push gold prices lower. Strong economic growth means the Federal Reserve might take steps to tighten monetary policy or raise interest rates, which affects gold prices as mentioned earlier.

Supply and demand factors

Like any commodity or service, increasing demand and limited supply tend to push the price of that commodity or service higher. Conversely, an oversupply of a commodity or service with low demand will push prices down.

For example, gold demand increased by 15% to 2,335 tons in the first half of 2016, with investment demand increasing by 16% to the highest level since 2009, according to the World Gold Council. However, gold supply only increased by 1% in the first half of 2016, the slowest supply growth since 2008. However, the increasing demand and limited supply kept gold prices high during that year.

Inflation

The fourth factor that affects the price of XAUUSD is inflation, or when the prices of goods and services rise. While not a certainty, higher inflation tends to push gold prices higher, while lower inflation or deflation can affect gold.

Inflation is almost always a sign of economic growth and expansion. Typically, the Federal Reserve will expand the money supply when the economy is growing and expanding. Expanding the money supply dilutes the value of each dollar in circulation, making it more expensive to buy assets that serve as stores of value, typically gold.

This is why quantitative easing programs that rapidly expand the money supply are seen as positive for physical gold prices and are a major driver for gold demand, especially for speculative purposes.

Stable inflation (just over 1%) in recent quarters. A lack of inflation is a factor preventing the FED from raising loan interest rates, but it also tends to keep gold prices favorable in a rising inflation environment. The push between interest rates and inflation can trigger a heated battle for gold prices.

Currency movements

Currency movements – the US dollar, since gold is priced in US dollars – is a significant factor that deeply affects XAUUSD.

A weaker dollar tends to push gold prices higher as other currencies and commodities around the world also increase in value when the US dollar weakens. Conversely, a rising dollar exchange rate typically indicates a growing US economy. This also helps push gold prices lower, as gold and the US dollar have an inverse relationship. The decline of the US dollar in 2016 was key to pushing gold prices higher.

Gold ETFs

Among the factors affecting XAUUSD prices, the actions of Exchange-Traded Funds (ETFs) for gold are perhaps the smallest factor with less impact on gold prices.

The SPDR Gold Shares ETF – the world’s largest gold ETF, buys and sells physical gold as requested by investors. When there is a change in gold investment demand, ETF buying and selling activities can affect the price. The inflow of gold ETF funds increased sharply in 2016, leading to increased ETF buying activity. This buying activity can have a positive impact on gold prices.

Economic and political crises

Economic and political instability is one of the factors causing gold prices to surge. Political issues are a prime example. Unlike the gold market, the stock market tends to seek security, so these two markets are considered opposites.

For example, how Brexit will affect the UK and Europe, who the next US president will be, or whether the terrorist threat in the Middle East will be resolved.

Especially during the COVID-19 pandemic, global instability spread worldwide, not limited to any one country, and the crisis became so complicated that it was difficult to pinpoint the exact circumstances. When things return to normal, the demand for gold reserves increases. As a result, the XAUUSD rate surged, breaking past records.

One thing that investors must remember is that political and economic crises are not quantifiable statistics like many other factors. This is a psychological factor that depends entirely on the investor and can change depending on the event.

Effective XAUUSD Trading Strategy in Forex Trend

You can trade XAUUSD on gold trading platforms or through Forex brokers. Most trading platforms today allow buying and selling gold. But how do you do it effectively? What indicators are commonly used in gold trading?

To have a successful gold trading strategy, you need to understand the factors that may affect your trading strategy:

• The most important factor is that gold is closely tied to the economic conditions of countries. If the market is unstable, it leads to a crisis or at least a recession, and investors will immediately turn to gold. Therefore, gold prices tend to rise during periods of crisis.
• It should be noted that, on average, trading gold with such long-term high spreads requires a large deposit, which often prevents many traders from using this instrument for trading.
• This spot exchange rate is typically closely correlated and often used for comparison with currency pairs like EUR/USD and USD/JPY. The movements of these two currency pairs accurately reflect the movements of gold.

The chart above reflects the average volatility of gold prices over a 52-week period during the early stages of the 2008 U.S. housing crisis. We can see that when compared to any major currency pair, the difference between them is quite clear. Most “serious” traders will trade gold, while casual traders will trade gold less frequently.

Central banks of these countries are the biggest players in the gold market. Therefore, this factor needs to be considered when building a gold trading strategy.

The reason behind a simple trading strategy is: Only a trader or investor of significant size would trade this instrument, so gold reflects the real situation when compared to other instruments, rather than changing prices based on volume ratios.

As we know, the volume indicator shows the number of trades, not the amount of money. Therefore, the number of trades that are not significant will decrease significantly, which allows us to better understand the gold market information.

The image above clearly illustrates what the volume indicator is showing us. As the price increases, liquidity starts to rise gradually. When the price decreases further, the downward trend in volume becomes more pronounced. Even with just a few candlestick patterns within the blue box, the volume indicator suggests that a market trend change is imminent. It’s worth noting that the Moving Average Convergence Divergence (MACD) in this example also shows a reversal signal.

However, even with this, you should wait for a clearer downtrend signal. Only when the price is below the moving average should you look for signals to open short positions during shorter periods between trading sessions.

Whether you use daily or weekly charts, you will find time to open a sell position. The volume group also shows a blue or red band, indicating that the price may change. However, there is still an opportunity to place a sell order when the price falls below the moving average indicator.

Basically, you can use pending orders. Stop-loss orders can be placed above/below the support/resistance levels of the trading range. The gold trading strategy is no different from other strategies. All indicators (Moving Average Convergence Divergence – MACD is a popular and perfect indicator for many types of trading), chart patterns, and time frames are similar.

The only special feature of this tool is that it requires more capital from the trader. The large spread, high volatility, and therefore, the large profit margin help traders use trading strategies more accurately within a tighter framework. On average, if a mistake in trading a currency pair results in significant losses, the same mistake in trading gold could be your final trading mistake.

Is trading gold XAUUSD good?

Any investment may not necessarily be profitable, especially since the US dollar and gold have a close relationship, so the volatility and spread can be large. However, risk often brings opportunities. If you have sufficient understanding, you can also make a lot of money.

Moreover, online gold investment has several advantages over traditional (physical) gold investment. Specifically as follows:

Furthermore, investing in online gold has several strengths compared to traditional (physical) gold investment as listed below:

• Simple investment, no worries about the safety of storage
• No need for too much capital to invest
• High liquidity
• Forex platforms offer high leverage for trading

However, once you invest, traders need to be careful when choosing a reputable platform to trust. Avoid choosing unreliable platforms that may result in losing money.

Some criteria to evaluate a quality Forex platform:

• Licenses
• Security and safety
• Deposit and withdrawal methods
• Transaction costs
• Leverage
• Spread

Top 5 reputable Forex platforms for trading XAUUSD

In Vietnam, investors mainly buy and sell gold bars at gold and jewelry shops and have not yet encountered professional gold and silver trading platforms. Gold is usually minted into rectangular pieces, stamped with purity details (e.g., 999, 9999…), and the name of the importing company.

In contrast, with the development of the global financial system and the increasing demand for trading, professional Forex gold platforms have been established in Sydney, New York, London, and other long-established financial centers. Furthermore, these platforms quickly launched gold, silver, commodities, and other derivative financial products, providing many investment opportunities.

When facing the gold market choices, which market should you participate in?

5 best Forex platforms for trading XAUUSD currently

Name	Regulatory Authority	XAU/USD Transaction Cost	Key Features
Mitrade	ASIC, CIMA	Spread Fee: 0.58 Leverage 1:100 Support Lot: 0.01 – 30 Commission: 0	Leverage up to 1:200Low costsSimple, user-friendly trading platform interface Market Maker (MM) Not MT4/5 software
FP Markets	ASIC, CySEC	Average Spread Fee: 0.4 Leverage 1:100 Support Lot: 0.01 – 30 Commission: 0	Uses MT4/MT5/IRESS software Leverage depends on the trader’s software No commission for standard accounts
XTB	FCA, CySEC, KNF, Bafin	Commission: 3.5 USD/Lot Max Leverage: 1:500	Low minimum deposit Fast deposits and withdrawals Friendly customer support
Liteforex	CySEC	Commission: From 5 USD/Lot Max Leverage: 1:500 Lot size: 0.01 – 100	Uses MT4, MT5 platforms Copy trading available Earn 2.5% annual interest on non-marginal funds
DooPrime	FCA, VSFC	0% Commission Max Leverage: 1:100Spread Fee: 0.8 – 2.2	24/7/365 multilingual customer supportUses MT4/MT5 platforms

The information in the table above is provided by evaluation websites and some has been published on official websites.

Criteria for choosing a suitable trading platform

Currently, Forex platforms are fiercely competing to attract customers’ attention and increase the number of trades. The mentioned platforms have many notable features or low transaction fees to attract customers. Based on trading habits and needs for any asset or product, you can choose a platform that suits you.

There are many award-winning brokers specializing in online Forex (FX) trading. They offer various assets, including forex, indices, commodities, cryptocurrencies, and other assets. You can freely invest in any asset with a single account.

Under the supervision of ASIC, trading is safer and more convenient

Choosing a platform regulated by the Australian Securities and Investments Commission (ASIC) ensures that your funds are safeguarded in segregated trust accounts as required by Australian law.

Simple interface, great trading experience

A more minimalist, intuitive, and visually accessible platform compared to Metatrader, which is considered a bit complex and requires many steps. In contrast, the new platform’s interface is simpler and more intuitive, helping traders execute trades more easily.

Low thresholds, competitive transaction costs

Competitive spreads and no commission. When you are an investor trading frequently every day, you truly appreciate finding a broker without commissions and low transaction fees.

Free chart analysis and risk management tools

When it comes to investing and trading, it’s impossible not to mention risk management and chart analysis tools. Some brokers provide these tools to traders without any charges.

What is XAUUSD? The analysis of XAUUSD and the forecast of its potential in the future have been summarized by FOREX in today’s article. Our fellow traders should be careful when choosing a broker and must understand currency pairs thoroughly before starting their investments. As the saying goes, “A pen drop kills the chicken,” so to succeed in every trade, don’t rush any decisions. We wish you effective trading strategies!