While most political and economic changes negatively affect fiat currencies, gold is considered to be a safe haven for investors. Even though it is highly volatile, its long-term value is indisputable compared to other world currencies. One of the reasons is that banks cannot print or debase it like fiat currency. However, it is sensitive to US monetary policy and decisions made by the Federal Reserve. So, when central banks purchase gold unexpectedly, markets can face increased XAU/USD trading volatility. So, CFD trading can be profitable only if a trader is aware of key trading tips and strategies. What are they?
Track Decisions Announced by Central Banks
A combination of gold and foreign currency reserves promises better stability for countries. To manage certain currency and geopolitical risks, they start buying gold as a strategic reserve. Such decisions may affect XAU/USD CFD trading, providing a rather increased volatility. So, you should pay attention to the news and announcements concerning the massive purchase of gold by these financial institutions, as they may result in these two outcomes:
- The price of USD falls;
- The cost of gold in relation to USD can rise for a short period.
One of the best examples was observed in 2022 when Russia decided to support its national currency Rouble and bought gold from commercial banks. So, when seeing such announcements, it is necessary to use that chance and open a buy position to earn on the price difference.
Keep an Eye on the Situation in the World
The recent trade tension between the USA and China affected the gold price, which rose to USD2,000 per ounce and even higher. Other political decisions also affect the price of assets in the market. For example, when Russia attacked Ukraine in 2022, the price per dollar increased against the local currency, while the RUB cost fell. Compared to the Ukrainian hryvnia, the cost changed in the following way:
- On the 23rd of February, USD was 28,98 UAH, while RUB was 0.3665 UAH; 1 OZ of gold cost 55056,9200 UAH;
- On the 24th of February, USD was 29,25 UAH, while RUB was 0.3645 UAH; 1 OZ of gold cost 55478,990 UAH.
These are the changes that Ukrainian interbank rates faced over a single day. The more influential and life-changing events occur, the more volatile the trading market becomes. Gold acts as a hedge, unlike fiat currency, which is significant for liquid portfolios. However, nobody can predict the outcome, which makes XAU/USD CFD trading always a risky thing.
Target Previous Highs and Lows
You can analyze the history of CFD trading concerning the highest and lowest prices for gold in the market over a certain time. The acquired knowledge can be used for setting your sell and buy points. In other words, you can set the selling point (Take Profit) based on the previous ceiling price and the buy point (Stop Loss) based on the previous floor cost per ounce in relation to USD. Even though such a strategy is extended in time as the gold price has a tendency to grow or drop gradually, it is also not that risky compared to other speculation strategies.
New York and London Hours are Best for XAU/USD Speculations
Experienced traders usually focus on the NY and London peak trading hours when buying or selling assets. At this time, the market demonstrates the highest liquidity, which can help you improve your trade more efficiently. Even though higher volatility may result in the highest income on price difference, it is the riskiest strategy at the same time, as price changes become unpredictable. So, it is essential to manage XAU/USD CFD positions accordingly.
Consider the Real-World Demand
When some assets are in high demand, the prices usually follow the trend. For example, if consumers demonstrate an increased interest in jewelry made of gold, the cost per ounce will also rise in the trading market. The situation repeats in relation to other areas where gold is used, including investments (ETFs, futures), central bank purchases, and technology (industrial uses).
Apply the Symmetrical Triangle Pattern
Sometimes, the market’s behavior becomes less predictable than usual. As a result, it is hard to predict the ceiling cost as it gets lower and the floor cost as it goes higher than it should. If you draw the so-called trend lines, you will get a figure that will resemble a triangle. It works like a spring that is squeezed but is about to break out. So, when the prices begin to rise after the breakout, traders buy. When it starts falling, they sell. So, setting SL and TP orders is essential if you decide to use this trading approach.
Takeaways
So, well-thought-out XAU/USD CFD trading requires not only funds but also general awareness and key trading tips to manage risks efficiently.
