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Trading Gold (XAUUSD): Technical and Fundamental Analysis of the Precious Metal

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Hey Valutraders!

Let’s take a look at trading Gold!

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So? What of what do we need to be aware if we want to trade Gold?

Price action on gold reacts mainly to 4 factors:

1. Movement of the USD based on fundamental events like economic news.

2. Technical opportunities on the XAUUSD charts.

3. Buying and selling of gold by big banks, central banks and investors.

4. Geopolitical events like wars and other conflicts.

Fundamental and technical factors influence the price of Gold but, the trader must also consider everything that affects its counterparty — the US Dollar.

So, before you start trading gold as XAUUSD, take a look at all the other USD pairs.

Here we can see my MT4 profile of all the USD major pairs and we can see obvious USD strength.

Also, these 2  charts show similar directions of another USD pair — AUDUSD.

We can easily see that the peaks, troughs, bear runs, and bull runs of price action are very similar. 

Does this mean that the price of Gold and the Australian Dollar are correlated?   

Not necessarily.

It does, however, mean that the USD is a big driver of price action for XAUUSD.

Also, please follow US economic news on your favourite economic calendar.

If the news drives price action into a technical level, against the trend, you may have an opportunity to get into the market WITH the trend.

Here we had a downtrend on XAUUSD, the economic news drove the price of gold up to this upper trend line, we had a reversal and technical indicators confirming the reversal, and then price action carried on with the trend.

Often, trading Gold after UNEXPECTED news can reap rewards if the trader is fast enough.

For example, many geopolitical events like aggressions, typhoons, earthquakes, etc., can cause investors to quickly lose confidence in the equity markets and shift their investments to cash and/or Gold, thereby driving up the price.  

You may not be fast enough to get in on the rising price BUT, the calming of tensions after these geopolitical events can then cause the price to fall back to previous levels.

Like any instrument you trade, you should always follow the fundamentals first, then the technicals.  

Technical analysis on Gold is not much different from any other instrument and the Valutrades MT4 and MT5 platforms give you all the tools you need.

Price action chart patterns like Double Tops which are reversal patterns are where we can enter trades when price action breaks this level of support at the neckline.

You can place your stop loss above this level of resistance.

Price action chart patterns like Double Bottoms are also reversal patterns where we can enter trade when price action breaks this level of resistance at the neckline.

You can place your stop loss below this level of support.

We also very often see patterns like Symmetrical Pennants where price action will usually break out of the consolidation quite dramatically.

And the same with triangles.

Like any other instrument we trade, we always want confirmation before entering a position and technical indicators are important.

Here, for example, we are using the Stochastic Oscillator to confirm the reversals of price action off a level of support and off the upper trend line.

The indicators can also be used to confirm the exiting of positions as well.

In these daily charts, we can also use MACD to spot the reversals.

The yellow boxes indicate where the signal line left the MACD histogram, corresponding with price action reversals, aligning perfectly with the stochastic oscillator.

Or, how about Fibonacci?

Of course, Fib retracements don’t always line up but, when they do, they can be an incredibly reliable source for spotting levels of support and resistance.

In this chart, all Fibonacci levels corresponded with key levels and reversals were confirmed by the stochastic oscillator.

Feel free to experiment with different confirming indicators until you find a system that works for you.

Gold also is a great instrument for gap trading.

To be fair, gap trading is actually a combination of both technical and fundamental analysis.  

The gap is always caused by a fundamental event, usually when markets are closed but when the gap is filled, we follow technical indicators on our charts.

But remember, with Gold, just like any instrument, “the trend is your friend”.

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