XAUUSD trading instrument has two components – gold and the US dollar. Thus, the quote shows how many dollars a troy ounce (31.1 grams) of gold costs. This trading instrument is characterized by high volatility; sometimes rate fluctuations may exceed 200 points.
Gold has a major impact on the currency market as it is the final form of any currency. Long ago gold was of great value for the mankind and was used as money to pay for goods. Today gold is one of the most popular goods as it never loses its value. Gold warrants price stability on the global market and it is one of major safe-haven assets in a number of countries. For these reasons, traders actively invest in gold.
Comparing gold on exchange market with the value of paper currency, it is easy to realize that the latter has almost no value. As it is known, the value of the paper money is determined by the level of confidence to the economic system of the government; and their value – by safety and power of the country where they are printed. Gold being a unit of the money system acts as a guarantor of any currency. Today many professional traders forecast the price of a particular currency based on the current price for gold which determines the price of this particular currency.
Latest data shows that demand for gold amounts to 4 tons annually, while gold global production contracts due to exhaustibility of natural recourses. As a result, demand for gold on the global market exceeds supply considerably which triggers higher prices for gold.
Gold rate on global markets is determined by the US dollar. The XAUUSD quote depends on the price dynamic of gold and US dollar. First, unfavorable economic events in the world affect the gold prices as the yellow metal is considered to be the safest investment. During crisis, the price of the yellow metal rises, while in the periods of economic growth it falls. Trading operations with gold on Forex are no different from trading other currency pairs. However, gold is highly dependent on the prices for oil. When oil quotes grow, gold gains in price. Gold is only traded against the US dollar. In case gold increases, the greenback loses in price.
The most favorable moment for conducting buy deals is when gold price falls to the lowest level. To determine this moment, it is necessary to carefully monitor the XAUUSD online chart and analyze it for several past months.