How to Trade Gold

Last Updated July 23rd 2021
20 Min Read

Trading gold is a whole different ball game to trading Forex currency pairs. Gold can be volatile and reactive to economic and world news. There's a lot of market sentiment involved with trading gold, with conflicting opinions on the probable direction of the price of gold.

As the value of gold is attached to the U.S dollar, the influence from the United States economy and events often dominates the price of gold.

Gold paired with the U.S dollar (XAU/USD) is the most common option for trading gold.

The gold market is highly liquid, with many opportunities for creating profits from trading gold. Often, investors buy gold and hold on to it as a safe commodity for investing.

But trading gold can be challenging. Gold has unique characteristics that require specific trading skills. Trading gold for beginners can lead to considerable losses if you don't know what you are doing.

Professional gold traders know the secrets of trading gold and make significant profits. They know what to watch for and how to spot the hidden pitfalls of trading gold. Some traders only trade gold because if you can master trading gold, you won't need to trade anything else.

In this article, you will learn the fundamentals of trading gold. You'll discover what drives the price of gold and understand the psychology of the gold market. You will find out why trading gold for beginners is not ideal, and we will look at a chart showing current price action for gold and a specific opportunity for trading gold that may present itself shortly.


What Moves Gold Prices?

Investors and traders alike have differing opinions on trading gold, but it comes down to a few influences. Gold reacts in specific environments and events, and the price of gold shifts with market sentiment, such as fear, greed and FOMO.

On the other side of the coin, the price of gold reacts to inflation and deflation and supply and demand. A problem occurs when psychology meets economic influences. The price of gold becomes unstable because of the polarity.

When you trade gold, how do you know what is driving the price of gold? Is it market sentiment or economics? For instance, if the financial markets have a significant reaction, like a big sell-off, gold will take off like a rocket, moving hundreds of pips in a short period, and it can go either way just as fast.

You often see huge price spikes on the gold charts, almost always blowing out many gold traders' stop losses. The mistake novice traders make when trading gold is to assume that market sentiment dominates the price of gold. But, in reality, it could just as easily be a hike in inflation, causing the price of gold to move.

For instance, in 2008, the economy nosedived. At first, gold didn't respond. But as fear deepened in the financial markets, professional gold traders capitalised on market sentiment (fear) and benefited from a severe reversal in the price of gold.

Quantitative easing caused deflation which set up the gold market and other commodities for opportunities for profits.  When fear and panic reactions are prevalent, that's the time for savvy gold traders to watch and wait for the perfect moment for gold trading online.

Don't Miss: Gold Price Prediction

Understanding Crowd Mentality

Visit any gold forum, and you'll find conflicting opinions on how to trade gold. Some traders say buy, and others say to sell gold. Specifically, gold bugs are bullish on gold, no matter how the charts appear.

What is a Gold Bug?

A gold bug is an expression used for people who are permanently bullish on gold.

They believe that fiat currencies are in decline, losing purchasing power due to inflation, national debt and expansionary monetary policy (policy aiming to increase cumulative demand and economic growth).

You can't deny the fundamentals behind the opinion of gold bugs. For instance, what is the world cost of managing the Covid-19 pandemic? Money was appearing from nowhere, and we know there's a price to pay for that somewhere down the line.

In the U.K. alone, the June budget report by Commons Library Parliament U.K. suggests the budget deficit was 14.3% of GDP in 20/21, a peacetime record.

The United Kingdom is a tiny country compared to many others. But a 14.3% deficit cannot fail to impact the long-term economy for one country.

These economic factors play a leading role in what influences the price of gold.

Institutional investors often hedge gold with risk-on and risk-off strategies, combining gold with bonds and currencies to pair growth with safety to make profits. These investors are usually big players, so their influence on the price of gold may be substantial.

Read Also: Strategies For Diversifying Your Portfolio

How to Trade Gold with the Bigger Picture

Gold, as mentioned before, has unique characteristics, which you ignore at your peril. It's near impossible to take a short-term view of trading gold.

It takes time to become familiar with the gold chart and assess historical data. You can identify the decade long trends for gold, followed by periods of bearish momentum, before bouncing back to new highs.

Gold respects historical price zones, but you can't assume you are safe to trade these areas.

Gold will catch you out because it has a habit of zooming through price structure and then spiking back to the price zone. Retail gold traders learn to be patient. They watch and wait for gold to show its hand before trading gold.

It's excellent advice for trading gold.

xau/usd daily chart

The above image is the daily chart for XAU/USD July 2021

On the chart are two parallel channels.

From the bottom left in December 2015, the price started to move upwards. The price of gold stayed within the ascending channel, often not managing to pierce the centre line.

The price broke out of the channel during the first week of April 2020. Many countries went into the first lockdown during the Covid-19 pandemic, and undoubtedly the fear in the financial markets influenced gold prices.

Gold hit a high of $2050 in August 2020 and started forming a small, declining bearish channel.

xau/usd price prediction chart

Looking at the close up of the price action for gold, it's respecting the descending channel.

The technical analysts among you may agree that the price of gold is heading for a tight triangle. The four-year ascending channel underneath will undoubtedly be respected. To trade gold right now is risky because the price is compromised.

The risks for trading gold are:

  •   Two opposing channels
  •   A triangle pattern

These are far from ideal trading conditions for gold.

The price of gold broke out of the descending channel by only 50 pips but then dropped like a stone back into the channel.

Gold is testing the top of the descending channel, but price action looks weak. That said, today is Friday afternoon when liquidity dries up as traders are closing their trades for the weekend.

It would be interesting to look at the XAU/USD chart again on Monday or Tuesday to see what happens. But, we suspect we may be waiting for a week before getting to the tip of the triangle. As these images are the daily chart, one candle is one day.

Check Out: Top Chart Patterns Every Trader Should Understand

What are the potential outcomes for trading gold?

There are a few possible scenarios:

  1. The price of gold squeezes into the triangle and breaks out above the bearish channel
  2. The price gets to the tip of the triangle and breaks through the 4-year bullish channel, and descends
  3. The price touches the descending channel centre line, which is level with the top of the 4-year ascending channel and bounces off
  4. The price breaks through the 4-year ascending channel, touches the centre line, bounces back up to either:
    a) retest the top line of the ascending channel or
    b) break through the top line, which would also clear the top of the descending channel.

Do these scenarios look like a good time to trade gold?

No, not at all. You could take a risk trading gold right now, but your trade would be speculative, nothing more than a gamble.

There's only one thing to do, and that is to wait.

When the price of gold breaks out of one or both of these channels, hold onto your hat. When gold breaks out, it does so with astonishing speed. It's like watching a stone leave a catapult.

Professional gold traders are undoubtedly waiting eagerly for the breakout and retest before taking a trade with gold.

Scalping Gold

Is it good to trade in gold? Yes, but gold is not ideal for scalping.

Gold is volatile, with big, unexpected swings, and often price action for gold appears random.

The main issue with scalping gold is knowing where to put your stop loss. If you have a tight stop loss for gold, it's almost guaranteed your trade will lose. Gold can move back and forward 20-100 pips in a short period and often spikes past previous highs and lows before settling on a direction.

Day Trading Gold

Gold is ideal for intraday trading because, as a day trader, you look at the bigger picture. To plan a day trade for gold, make sure your stop loss has enough room to breathe and don't take a trade until the price of gold has tested key levels and bounced back once or twice.

How do you trade in gold as a day trader?

Don't be greedy with target levels, as this is where novice gold traders get caught out. If your risk management permits, take two trades, split them into smaller lots to account for your risk.

Set one target just above or below the previous high or low and have the second target at the next level of price structure.

When your first trade closes in profit, move the stop loss for the second trade to breakeven. Accept that price action may return and close your trade. That's what gold often does. But, if it doesn't, you have a nice profit from two trades

Swing Trading Gold

Swing traders love trading gold. As most swing trades hold trades overnight, for days or weeks and, in some cases, months, they are happy to wait for the perfect setup.

The charts we discussed earlier are, as we speak, earmarked by gold swing traders. They wait for a definitive breakout, and they may then ride the trend until the price stalls or starts crawling back.

More capital is required to swing trade gold, primarily because tight stop losses do not work with gold.

Aim for a minimum of 2 to 1 risk to reward (RTR) because, once gold gets on the move, this is easily achievable. Some gold swing traders may have RTRs of 6 to 1 or 10 to 1 because they are familiar with gold, know the price patterns and assess risk based on past historical price data.

Recap of How to Trade Gold

Gold reacts to market sentiment like fear and greed.

Gold also responds to economic news and such things as inflation, economic decisions and monetary policies. The dollar measures the price of gold. So it's essential to check the fundamentals for the United States before trading gold.

Scalping gold is not the best way to trade gold.

It is better to day trade gold or swing trade gold. Gold is not ideal for scalping because the price of gold tends to move in big increments. It's not unusual for gold prices to shoot 50-200 pips in a short period.

Because you need a bigger stop loss to trade gold, you may need more capital. Day traders can trade gold intraday on the 1-hour chart or 4-hour chart and catch some price moves.

Gold swing traders trade the daily or weekly charts, sometimes checking the 4-hour or 1-hour chart for better entry points.

Gold mostly respects historical price points, but it has a habit of creating price spikes that spear through resistance and then bounce back like an elastic band.

These price spikes could seem intentional to gather up the stop losses of retail traders. Thankfully it isn't a daily occurrence. It's worth noting that these price spikes always touch a historical price point, such as where the price made a previous breakout.

Gold trading basics are:

  1.   Always have a stop loss when trading gold
  2.   Use a bigger stop loss than for most  Forex currency pairs
  3.   Don't try to track the price of gold too closely
  4.   Use simple strategies for trading gold
  5.   Spend time practising trading gold with a demo account
  6.   Avoid scalping gold
  7.   Day trade or swing trade gold
  8.   Be patient and wait for the absolute best setups

You will either love or loathe gold. Trading gold for beginners is a challenge, and most novice traders will lose with gold until they figure out how trading gold works.

The more time you spend trading gold, the more chance you have of succeeding as a gold trader.

Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.

Trading or investing in cryptocurrencies may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.

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How much money do you need to trade gold?

When trading gold, it is rarely possible to trade with tight stop losses.

If you are committed to a 1% risk per trade, that could cause issues if you want to trade gold with a small trading account. It also depends on if you scalp gold, or day trade gold or are a gold swing trader.

Typically, when trading Forex, you can get away with a 10-20 pip stop loss on some currency pairs, those with less volatility, such as EUR/USD.

But a 10-20 pip stop loss on gold is going to get you stopped out.  As mentioned earlier, scalp trading gold is not ideal.

Day traders for gold need more money because they are intraday trading, so the trade requires a bigger stop loss. They may trade on the 1-hour or 4-hour chart, so a 50-100 pip stop loss is usual.

Swing traders need the most money for trading gold.

They are trading the bigger price moves in the gold market, so their trades may have 100-300 pip stop losses. If you have a $1000 account, that's $10 - $30. If you have a $300 account, you cannot swing trade gold without putting your trading capital at risk.

Ideally, to day trade or swing trade gold, starting capital of at least $2000 means you can trade micro-lots and still have enough room to trade gold successfully.

How do you trade gold for beginners?

Gold trading for beginners is not recommended. Gold is volatile and unpredictable. Your gold trades require wider stop losses and the experience to recognise false breakouts, which gold often does.

It is better to practice trading Forex for a few months, and if you want to trade gold, practice with a demo account. For most beginners, trading gold is boom or bust and one often closely follows the other.

Is there a profitable gold trading strategy?

Any strategy for trading gold can be profitable, but it depends on the trader.

Although trading gold is challenging, you don't need complex strategies to trade gold.

Gold does respect (mostly) channels and support and resistance zones. The chart we featured in the article is a potential setup for a breakout trade, which is a good strategy for gold but does involve a lot of waiting around for the price action of gold to form a pattern for a breakout.

Don't rely on one strategy for trading gold. Have at least two confirmation indicators or strategies that all line up before committing to taking a gold trade.

What time does gold stop trading?

You can trade gold XAU/USD 24-hours a day for five days a week.

The market opens on Sunday night (5 PM EST).

The market closes on a Friday afternoon (4 PM EST).

What is the best way to trade gold?


Wait for the price of gold to either consolidate or settle at key structures, like support or resistance. 

Breakout trading can work well for trading gold. Find a profitable gold trading strategy and implement it when you identify a signal on the chart for a trade.

Look for the highest probability trades. Gold is unrelenting and, at times, challenging to analyse. The trick is only to trade gold when you get a clear picture from the charts.

Ideally, it is better to day trade gold or swing trade gold. Scalping gold is risky and tough to master without risking more than 1% of your account.

What is the best indicator for trading gold?

The EMA (Exponential moving average) indicator can be a good confirmation for trading gold. As gold is better traded on higher timeframes like 4-hour, daily or weekly, the 50 EMA and the 200 EMA are an excellent combination. You enter the trade at the close of the candle below or above the crossing of the 50 EMA and 200 EMA.

The Fibonacci indicator can help assess potential reversal zones. If you combine it with the moving averages, it can help to evaluate the probable direction.

What's the best gold trading strategy?

There is no one best strategy for trading gold.

Find gold trading strategies to suit specific market conditions. Some gold traders specifically trade during high-impact news and do very well.  But that is a risky strategy if you have limited experience of trading gold.

A few popular strategies for trading gold are:

  1.   Pullback strategy for trading gold
  2.   Breakout strategy for trading gold
  3.   Moving averages strategy for trading gold
  4.   Double tops or double bottoms strategy for trading gold
  5.   Price action for trading gold
  6.   Trend trading strategy for gold
  7.   Fibonacci trading for gold
  8.   Chart patterns for trading gold – i.e. head and shoulders pattern, triangle patterns and flag patterns

Is trading gold profitable?

If you put in the time and become a better trader, gold can be very profitable. But trading gold is like a combination of an art form and science. Gold reacts to market sentiment, economic news and world events and corresponds with what is happening with the dollar.

When you analyse gold, always check the fundamentals for the U.S dollar.

Gold reacts to the U.S non-farm payroll, which is the first Friday of each month. It makes sense because of the dollar pairing. But, occasionally, gold over-reacts and spirals into crazy volatility, spiking up and down until it settles later in the afternoon.

Trading gold on any Friday is best avoided as liquidity drops off from Friday afternoon, London time.

What's the best time to trade gold?

The best time to trade gold is during active market sessions when liquidity is high.

For instance, the first three hours of session opening are highly liquid. Gold is active during the London session and the U.S session, and often the Tokyo session.

Is online gold trading safe?

It depends on what you mean by safe.

Gold trading for beginners is risky as gold is volatile to trade. If you want to know how to trade gold safely, the best ways are to start with a demo account. Become familiar with trading gold. Trade each day with gold in your demo account, so you learn to identify price action for gold.

During periods of high volatility, do some research to discover what causes gold to be so volatile.

Trade with a regulated broker, and they will provide a demo account. There are many gold trading tips online, but the best way to trade gold safely is to follow the outlined steps in this article. But accept that occasionally, gold may catch out even the most experienced gold trader.

Like any currency pair or stock, the more familiar you become with a financial instrument, the more chance you have of trading gold successfully.