Why Trade Gold?
Gold (XAU/USD) is the most traded precious metal in the world and one of the most popular instruments in the forex market. Traders are drawn to gold for several compelling reasons:
- Safe haven asset: Gold historically rises during geopolitical crises, stock market crashes, and economic uncertainty
- Inflation hedge: When inflation erodes currency purchasing power, gold preserves value
- High liquidity: Gold is traded 24/5 globally with tight spreads
- Strong trends: Gold often develops extended directional moves, rewarding trend traders
- Portfolio diversification: Gold tends to be negatively correlated with the US Dollar
On XM, gold is traded as XAU/USD — one troy ounce of gold measured in US Dollars.
What Drives Gold Prices?
Understanding gold price drivers helps you anticipate major moves:
| Factor | Impact on Gold |
|---|---|
| USD Strength | Inverse relationship — strong USD = lower gold |
| US Real Interest Rates | Higher real rates = lower gold (gold pays no interest) |
| Geopolitical Risk | War, political instability = gold rises as safe haven |
| Inflation/CPI Data | Higher inflation expectations = gold rises |
| Federal Reserve Policy | Dovish Fed (rate cuts) = bullish for gold |
| Stock Market Crashes | Risk-off environment = gold demand spikes |
| Central Bank Buying | Large CB purchases drive long-term price up |
| US Dollar Index (DXY) | Gold and DXY move in opposite directions ~80% of the time |
Gold Trading Strategies
1. News-Driven Trading
- Trade gold around major US economic events (NFP, CPI, FOMC)
- Before: spread narrows; position based on expected outcome
- After: trade the sustained trend that develops over hours/days
2. Safe Haven Surge Trading
- Monitor global risk events (wars, financial crises, political upheaval)
- Gold spikes on fear; buy on early moves or pullbacks
- Use wide stops — gold is volatile during risk events
3. Technical Swing Trading
- Gold respects technical levels very well
- Key levels: round numbers ($1,900, $2,000, $2,500), historical highs/lows
- Daily chart is the most reliable for swing traders
- Moving averages (50-day, 200-day) act as strong support/resistance
4. Trend Following
- Gold often trends for months — the 2020 rally from $1,500 to $2,075 took 6 months
- Use moving average crossovers or channel breakouts to identify trend starts
- Add to winning positions during consolidations (pyramid)
Gold Trading Characteristics
| Feature | Detail |
|---|---|
| Symbol | XAU/USD |
| 1 Lot size | 100 troy ounces |
| Pip value (1 lot) | $10 per $0.10 move |
| Daily range | 10–40 dollars (100–400 pips) |
| Spread (XM) | From $0.30 per ounce |
| Best trading hours | 08:00–17:00 GMT (London + New York) |
| Contract currency | USD |
Gold and Islamic Finance
From an Islamic finance perspective, gold has special significance and rules:
Historical Islamic view: Gold and silver are considered real, intrinsic-value assets (they are mentioned in the Quran as standards of wealth). Physical gold has always been considered halal.
Forex gold trading (XAU/USD) considerations:
- Spot gold trading (immediate delivery) is permitted under Islamic law
- The contract must be settled on the spot — Islam prohibits selling gold for gold with a delay (riba al-nasiah)
- Swap-free (Islamic) accounts eliminate the overnight interest that would otherwise accumulate
- On XM's Islamic accounts, gold trading is available without swap charges
Scholar consensus:
- Most Islamic finance scholars consider spot XAU/USD trading permissible when conducted through a legitimate Islamic account
- The key condition: it must be treated as real exchange (not speculative gambling), with proper risk management
For Muslim traders, XM's Islamic account provides access to gold trading without interest-based charges, making it fully compliant with Islamic finance principles.