How to Trade
Gold (XAU/USD)

If you type "gold" into Google Trends, you will see that the precious metal is one of the most consistently searched financial topics in the world. It is not hard to see why. Gold has captivated humanity for thousands of years, and in 2024 it hit an all-time high of $2,790 per ounce — making it one of the best-performing assets of the year.

But there is an important distinction to make early on. When most people search for "gold", they are thinking about gold as an investment — buying physical bars or coins and holding them. That is a valid strategy, and we will cover it. But this guide focuses primarily on trading gold — specifically gold CFDs (Contracts for Difference) traded as XAU/USD — which means speculating on gold's price movements for profit without ever owning the physical metal.

This guide covers everything: why gold matters as an asset class, what moves the price, how central banks influence the market, how to use both technical and fundamental analysis, and practical recommendations for getting started. Whether you are a complete beginner or an experienced trader looking to add gold to your repertoire, this guide is for you.

If you are brand new to trading in general, we recommend reading our What is Trading guide first, then coming back here.

How Central Banks Influence Gold

Central banks are the single biggest structural force in the gold market. The Bank of England alone holds approximately 400,000 gold bars in its vaults — worth hundreds of billions of pounds. When central banks collectively shift from selling to buying (or vice versa), it creates multi-year trends in the gold price.

In the early 2000s, European central banks were net sellers of gold under the Central Bank Gold Agreement (CBGA). Gold was range-bound during this period. Then, around 2009–2010, emerging market central banks — led by Russia and China — became aggressive buyers. This shift helped launch gold's bull run from $800 to over $1,900.

In 2022, central banks bought a record 1,136 tonnes of gold. In 2024, they followed up with 1,037 tonnes — the second-highest year ever. According to the World Gold Council, the biggest buyers have been China, Poland, India, Turkey, and several BRICS-aligned nations actively diversifying away from USD reserves.

How Risk Aversion Affects Gold

Financial markets swing between two states: risk-on and risk-off. During risk-on periods, money flows into equities, high-yield bonds, and emerging markets. During risk-off periods, it flows into safe havens — US Treasuries, the Japanese Yen, the Swiss Franc, and above all, gold.

This risk-on/risk-off dynamic does not just play out over weeks and months. It happens intraday. A negative headline about a banking crisis or geopolitical escalation can send gold spiking $20–30 in minutes. Learning to read market sentiment is essential for short-term gold traders.

How Trends in the USD Affect Gold

Gold is priced per troy ounce in US Dollars. This means that when the dollar weakens against other currencies, gold effectively becomes cheaper for international buyers — and demand rises. The inverse is also true: a strengthening dollar makes gold more expensive and tends to suppress demand.

The DXY (Dollar Index) — which measures the USD against a basket of six major currencies — is the single most useful tool for tracking this relationship. Many experienced gold traders watch DXY charts before they look at gold charts, because the dollar often leads gold's moves by 24–48 hours.

How Inflation Dynamics Affect Gold

Gold is often described as an "inflation hedge", and while this is broadly true over long timeframes, the relationship is more nuanced in the short term. Gold does not simply rise whenever CPI goes up. Instead, gold responds to real interest rates — the nominal interest rate minus inflation.

When real rates are positive (interest rates exceed inflation), holding bonds pays you a real return, making gold less attractive. When real rates are negative (inflation exceeds interest rates), bonds lose purchasing power, and gold — which holds its value — becomes the better store of wealth. This is why gold rallied aggressively in 2020–2022 when central banks held rates near zero while inflation surged.

Global Market Instability

Gold has proven itself in every major crisis of the modern era. During the 2008 financial crisis, gold rallied 25% while equities collapsed. During COVID-19 in 2020, gold surged past $2,000 for the first time. When Russia invaded Ukraine in 2022, gold spiked 8% in days. Ongoing tensions in the Middle East and the broader BRICS de-dollarisation movement contributed to gold reaching $2,790 in October 2024.

The pattern is consistent: when uncertainty rises, gold rises. This is not speculation — it is a structural feature of how global capital flows work.

Method 1: Classic Technical Analysis

Gold respects classical chart patterns and technical levels remarkably well. The key tools are:

• Trend lines and channels: Draw lines connecting swing highs and lows. Gold tends to respect these lines for weeks or months.
• Support and resistance: Psychological round numbers ($2,000, $2,500, $2,800) act as magnets. Watch for bounces at these levels.
• Moving averages: The 50-day and 200-day moving averages are widely followed. A "golden cross" (50-day crosses above 200-day) is historically bullish.
• RSI divergence: When gold makes a new high but RSI does not, the rally is weakening. This "bearish divergence" is one of the most reliable reversal signals.

The beauty of classic technical analysis is that it works on any timeframe. Whether you are day trading on a 15-minute chart or swing trading on the daily chart, the same principles apply.

Method 2: Advanced DXY Correlation Analysis

This is the method that separates experienced gold traders from beginners. Instead of analysing gold in isolation, you analyse it alongside the DXY (US Dollar Index) to exploit the inverse correlation between the two.

Here is how it works in practice:

1. Open the DXY chart alongside XAU/USD on your trading platform.
2. Identify key support and resistance levels on the DXY chart.
3. When DXY approaches a resistance level (meaning the dollar is likely to weaken), look for long setups on gold.
4. When DXY approaches a support level (meaning the dollar is likely to strengthen), look for short setups on gold.
5. Use RSI divergence on DXY to confirm reversals before entering gold trades.

The advantage of this method is that DXY often leads gold by a few hours to a full day. By watching the dollar, you can position yourself in gold before the crowd. This is a genuine edge that many retail traders overlook.