Speculation in the currency market is not the only way for traders to earn money. Many of them prefer precious metals trading, especially gold, believing that it would ensure greater profits. There is a widespread belief among traders that precious metals trading requires a special Forex indicator for gold.
In fact, this statement is not entirely true. The gold price chart is subject to the same laws as the currency pairs charts. Therefore you can use the same techniques in gold trading as in the currency trading. The set of indicators used for trading remains the same.
Of course, the gold trading has its peculiarities. The main difference is in the high volatility of this instrument. If the fastest currency pairs in the downward direction pass on average 2-3 points per hour, this figure for the gold is much higher. The distinctive features of the gold trading include the existing link to the behavior of a number of world currencies, as well as increased sensitivity to fundamentals.
Which Forex indicator for gold should be used in trading
As for selecting the specific indicator for the gold trading, the recommendations will be the same as for currency trading. To identify the trend movement, you can use a set of moving averages, for example, while for trading in the flat area you can use Stochastic Oscillator, MACD, RSI, etc.
In addition to the standard tricks in trading, there are methods based on correlation of movement of gold and a number of international currencies. In this case, the effect of the delay of gold movement is used in relation to a particular currency. When using this method of trading, you must analyze the behavior of 2-3 price charts at the same time.
To facilitate this task, an indicator of correlation is often used, which allows to show several instruments in one window, such as AUD/USD, EUR/USD, etc. Quite often, the gold chart reacts with some delay at strengthening/weakening of the US dollar and the Australian dollar, and this phenomenon is used in trading.
The Forex indicator for gold named Overlay Charts can be regarded as an example of such a tool. In addition to the gold price chart, it allows to display any of the currency pairs in the same window. The settings allow you to change only the color of the second chart, and there is also the ability to flip the second chart.
Link between the price of gold and world currencies
When using such an indicator, it is important to know which currency pairs have the greatest influence on the precious metal. It is necessary to pay attention to such currencies as the US Dollar (behavior of EUR/USD pair), Australian and New Zealand dollar (AUD/USD and NZD/USD), Swiss Franc (USD/CHF).
The United States rank second in the world by the level of gold production, so the state of the American currency strongly influences the price of gold. There is an inverse correlation between the USD and the price of gold, i.e. when the dollar price increases, the gold price decreases and vice versa.
The Australian currency affects precious metals due to the fact that Australia is leading in terms of gold production. New Zealand’s economics is closely intertwined with the economics of Australia, so its currency also affects the price of the precious metal.
It’s hard to include Switzerland into the list of the world leaders in mining, and the reason why franc affects the price of gold is somewhat different. The matter is that during the crisis the investors are interested in the Swiss currency just because the economics of this country is so-called “tied” to the gold. Therefore, an increase in demand for the Swiss franc will inevitably lead to an increase in gold.
Fundamental factors as Forex indicator for gold
Fundamental factors also significantly affect the price of gold. Throughout the existence of the mankind, the gold has been used in the financial system, and the situation has not changed today. During the tumultuous period, when the growth of economics is replaced by stagnation, gold is becoming more attractive to investors.
You can follow a few rules in trading:
- the cost of energy commodities (particularly oil) directly affects the price of gold. There is a direct correlation between the price of oil and gold;
- economic situation in the United States, Australia, New Zealand, Switzerland;
- revision of gold and forex reserves by the central banks of major countries. The gold reserves of these countries don’t have to be necessarily backed by gold bullion;
- other geopolitical factors. For example, the Islamic states do not hide their intention to introduce the gold dinar, 100% based on gold. If this happens, the market will experience a sharp rise in gold prices.
Examples of making deals
As it was already noted, standard tricks in trading work well with gold – for example, technical analysis and common mt4 indicators. In this example, the signal for opening a short position was the price reaching the level of correction of 50% from the last downward move, retest of the broken descending channel and the fact that Stochastic was in the overbought area.
To use the link between the price of gold and currencies in trading, you have to add another chart. In this example, the dollar on the EUR/USD chart (timeframe m15) strengthened. After 30 minutes, it was reflected in the price of gold. In fairness it should be noted that this relationship between the currency and the price of gold is far not always triggered.
It can be argued that a specialized Forex indicator for gold is a myth. In fact, standard mt4 indicators are sufficient to successfully trade these instruments. The only peculiarity of gold trading can be called sensitivity to fundamentals and close relationship with a number of international currencies.Social button for Joomla