Gold has become popular over the past few years as foreign exchange traders seek sustainable investments that can protect against inflation, market instability and other geopolitical factors affecting currency prices. Traders can use gold as a means of protection against other investments or as a safe haven that provides stability over time and resists dramatic fluctuations in valuation over many currencies.
XAU / USD is one of the many gold pairs that forex brokers now offer, making it easier than ever to combine gold as part of your forex trading strategy. The stability of gold is largely indebted to its standard global level, which cannot be dramatically increased in the same way that governments can print more paper currency.

If you are interested in making the best use of gold and exploiting potential profit opportunities, here are seven trading hints to keep in mind.

1. Look into New York Trading session for your target trades

Gold is a nearly 24-hour market, but maximum cash flow is typically found during New York trading hours. Whether or not you want to target trading during or after New York trading hours depends on your goals. Trades offer high liquidity and low volatility during peak activity, which creates good targets for safe haven positions, while hourly trading provides the additional volatility needed to implement scaling strategies. At the same time, these additional fluctuations increase the risk associated with any trade.

2. Do Analysis of Gold previous move

As the XAU / USD tend to trade in a range; one of the easiest strategies is to identify buying or selling opportunities within the pre-trading ups and downs. Traders can open a position on gold when it opens, for example, by targeting the previous price as their selling price or vice versa.

Since gold is a relatively stable asset, it may reach this previous high or low over time. Keep in mind that this is not a good strategy for day trading because it will take time to achieve these goals, and limited strategies usually do not offer quick profit opportunities like speed strategies. However, it is a relatively low risk strategy designed to make a small profit from a reliable XAU / USD price movement.

 3. Technical view on Longer Chart pattern breakouts & Day Moving Average

Longer Chart Pattern Breakouts: The symmetrical triangle is a simple chart pattern that indicates a period of consolidation that may lead to a price breakout. Symmetrical triangles feature the convergence of two trend lines progressing at a similar slope, but in opposite directions. As consolidation takes place, price movement on the pairing grows tighter, creating a potential trading opportunity on a breakout. Most traders use the symmetrical triangle pattern along with other technical indicators, such as liquidity or the relative strength index. When other indicators suggest a potential price breakout, the symmetrical triangle can add further confirmation and increase confidence in placing an order on XAU/USD. A stop-loss order can be placed just below the descending trend line after the two trend lines converge, and sell orders can be issued in the event that the price of XAU/USD successfully breaks out.

Example of Longer Chart Pattern Breakouts in XAUUSD Chart

Moving Average: Gold prices are tending to fluctuate within a range, they will cause different moving averages to cross over on forex charts. Many traders will buy whenever a shorter-term moving average crosses a longer-term moving average. For example, if a 20-day moving average were to cross the price point for the 50-day moving average, it would signal a buy opportunity for long-term traders. In the XAU chart below, for example, the 50-day moving average moves above the 100-day moving average in early April 2020—when the pandemic was starting to inflict significant damage on economies around the globe. Not surprisingly, this moving average crossover predicated a significant rise in the value of gold over the next few months:

Example of Moving average 10MA & 60MA in XAUUSD Chart

The opposite is also true: If a short-term moving average were to dip below a longer-term moving average, traders using this strategy would likely sell in anticipation of continued losses. There’s no exact science to which moving averages you should use to make these determinations, but it’s good to have a large gap between the two. The 10- and 20-day moving averages aren’t distinct enough to offer value in this scenario, for example. The 10- and 60-day moving averages, though, are a popular pairing for this strategy.

4. Consider foreign affairs of Forex Market

While political or economic uncertainty can create concerns about currency prices, gold can be a permanent safe haven to protect your liquid assets. U.S. Gold is strongly associated with the dollar and other fixed currencies such as the Japanese yen, and opening a position with the XAU / USD is a reliable way to protect your assets from unpredictable conditions affecting other forex markets.

5.Watch Market Demand of Gold

Increased market demand for gold can affect prices due to the fixed global supply of the material. Demand can come in multiple forms. Certain industries may increase their acquisitions of gold due to the material’s role in consumer projects. Both the medical and tech industries, for example, use gold in certain products and solutions. Consumer demand for gold jewelry can also affect prices. Consider global demand in foreign markets where gold jewelry is considered both a luxury good and an investment asset.

6. Track Central Bank Activities: Decision on Buying Gold & Interest Rates

Decision on Buying Gold : Central banks tend to buy gold as a hedge when they’re anticipating volatility in certain currencies. Recently, for example, China and Russia made headlines for making significant investments in gold, which reflected their concern about the future price of the U.S. dollar and the euro, among other major global currencies. When central banks start buying gold in large amounts, it tells forex traders two things. First, governments are operating out of a belief that major currency values may dip, which could encourage traders to move a greater percentage of their investments into less volatile funds. Second, increased central bank buying typically causes an increase in the price of gold—at least in the short term. If gold prices start trending up, it could be an opportunity to turn a quick profit.

Decision on Central Bank Interest Rates: Gold has a well-documented correlation with real interest rates, with prices rising as interest rates decline and prices dropping as interest rates rise. The real interest rate is determined by subtracting the inflation rate from the nominal interest rate, resulting in a percentage gain or loss that takes inflation into account. Historically, gold prices tend to rise when the real interest rate dips below 1%. By watching this interest rate as it changes over time, you can identify a strong buying opportunity—especially if you’re looking for long-term trading opportunities. By contrast, a real interest rate above 2% likely deflates the value of gold. Many experts will recommend a sell on XAU/USD if the real interest rate reaches this threshold.

7. Focus on Changes in Gold Production

In the past few years, gold mining hasn’t seen any dramatic shifts. It’s not necessarily related to a stagnant demand for gold: Although gold is in demand and has seen overall mining production increase over the past decade, today’s gold mining efforts face higher costs due to the challenges of accessing underground gold reserves in hard-to-reach places.

The most accessible gold reserves—at least the ones currently known—have already been mined and placed into the global supply. The remaining gold reserves represent much more expensive mining operations, which decreases profit potential for mining businesses. But limited production isn’t a sign that gold is poised for a decline. In fact, the opposite is true: Stable gold production could put the squeeze on global demand and lead to higher prices, especially if central banks and other common buyers of gold start seeking out this asset

Conclusion

The stability of gold prices over time makes it an important asset in times of inflation, i.e. what we see today. As the COVID-19 pandemic shakes the global economy, foreign governments and interested foreign exchange traders are moving their excess gold to protect themselves against losses caused by inflation. Although the price of gold is affected by different factors than that of typical forex currencies, many of the rules for evaluating forex currencies still apply. Forex traders should consider XAU/USD as a reliable safe haven for their investment activity, as well as a potential profit source if they can effectively analyze gold’s price movements and develop a trading strategy to capitalize on this opportunity.