Gold has been one of humanity’s valuable assets even before the invention of currency notes, and since ancient times, it has been a precious and scarce metal. Due to its scarcity, the value of gold has never decreased, and humans have always sought to store it as a symbol of wealth and power. Gold in the forex market has always been considered a secure investment and is regarded as one of the stable assets among others in the forex market. When investors and traders in the forex market become uncertain about the economic situation or market fluctuations, they turn to gold. However, how gold is analyzed in the forex market and what techniques can be used to analyze gold in forex are questions that we will address in the following article.
The history of gold in forex
In the world of currency trading and commerce, gold has a long and eventful history. In fact, gold has been considered an international currency for thousands of years before the production of paper money, and many regions used gold to trade with each other. In the early days of the formation of the forex market, gold played a significant role as it served as a benchmark for the value of other currencies, and the value of other currencies was determined relative to gold.
In the mid-20th century, the Bretton Woods Agreement established a system where the value of the US dollar was tied to the price of gold. This meant that other countries could convert their currencies to gold at a fixed rate and create a sense of stability and predictability in the global financial system. However, this system eventually collapsed in the 1970s due to various economic pressures, and countries gradually moved away from gold as a constant standard. Today, gold is still traded as a commodity in the forex markets, and its value is influenced by a spectrum of factors, including supply and demand, geopolitical tensions, and economic indicators.
Gold Market Analysis
The gold market is considered a significant part of the forex market. This is because gold is one of the most traded commodities in the world and is regarded as a secure asset for individuals. Those who intend to enter this market should be familiar with gold market analysis. Gold market analysis encompasses a wide range of technical and fundamental indicators, and mastering each of them will be essential for analyzing the gold market.
Price Analysis of Gold
One of the common methods in analyzing gold in Forex is technical analysis, which involves using charts and indicators to identify patterns and trends in the price movement of the currency. For example, a trader might use moving averages or Fibonacci retracement levels to identify key support and resistance levels for the price of gold.
Another approach to analyzing the price of gold in Forex is fundamental analysis. In fundamental analysis, traders examine economic and geopolitical factors that impact the supply and demand of gold. For instance, traders evaluating the gold market would study factors such as interest rates, inflation reports, and political developments in major gold-producing countries. Based on this analysis, they make decisions regarding buying and selling gold.
Gold Price Prediction:
For instance, a trader decides to look at a chart of the price of gold in US dollars over a specific period, such as the past month. They realize that the price of gold during this period has fluctuated between $1800 to $1850 per ounce. Based on these observations, the trader can decide that if the price goes above $1850, they will place a buy order, or if it goes below $1800, they will place a sell order.
Fundamental Analysis of Gold
Fundamental analysis is one of the important tools for evaluating the value of a specific asset, such as gold. Traders, through analyzing significant factors like economic, political, financial, and geopolitical factors, can obtain crucial information about the price trend of gold, as all these factors will impact the value of gold.
Regarding gold, fundamental analysis is highly practical and beneficial for traders. Since gold is widely traded and has a long history as a store of value, its price can fluctuate under economic and political conditions of countries. In the following, we will mention several key factors in fundamental analysis and explain their impact on the price trend of gold:
Global Economic Conditions:
As mentioned earlier, gold has been historically perceived as a secure asset and capital. Investors and traders turn to the gold market when they have doubts about economic conditions and stability. Therefore, global economic conditions are considered a significant factor influencing the price of gold. For instance, during periods when major influential countries like the United States experience recession or financial crisis, traders seek refuge in the gold market to protect their wealth. On the other hand, if a country’s economy is growing, markets will remain stable, and the demand for gold decreases. This is because traders pursue higher-risk investments for greater profits.
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Interest Rates:
Interest rates are another influential factor in the price of gold. When interest rates are high, investors show less interest in gold, as they won’t gain any profit and are more likely to invest in other options such as buying bonds or currency pairs. However, when interest rates are low, buying gold becomes appealing for investors who aim to preserve their wealth against inflation.
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Inflation:
In many countries facing inflation, gold is considered a protective hedge against it. As inflation increases, the price of gold also rises. With rising inflation, the value of a country’s currency diminishes, leading investors to turn to gold for long-term wealth preservation.
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Geopolitical Events:
Political and social instability in any part of the world creates uncertainty in financial markets, prompting investors to move towards gold for a safe investment. Events such as wars, natural disasters, and other unexpected occurrences all play a significant role in creating fluctuations in financial markets. Consequently, gold’s role in providing portfolio stability and diversification in these volatile markets will become more pronounced.
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Supply and Demand:
Supply and demand, as a perpetual factor in determining the price of any asset, also hold a pivotal role in the price of gold. When the demand for gold exceeds its supply, its price increases. Conversely, if the supply of gold surpasses demand, its price decreases. Factors like mining output, recycling activities, and changes in investor sentiment towards gold can have a significant impact on the supply and demand dynamics. For example, if new gold mines come online, the overall supply of gold increases, affecting its price.
Technical Analysis of Gold
In technical analysis, past price data and volume are utilized to identify patterns, trends, charts, and other technical tools for predicting future price changes of gold. Below, we will explain some of the most important technical tools.
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Past Price Data:
The first and most crucial factor in analyzing gold technically is studying past price data. These data display past gold prices, and by using various tools and charts, it’s possible to forecast this price trend in the future.
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Volume:
In technical analysis, the trading activity volume in the gold market should also be examined. High volume indicates strong pressure for buying and selling gold in the market, which can impact the price of gold.
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Technical Indicators:
Indicators such as moving averages, RSI, Bollinger Bands, and Fibonacci retracements can aid in identifying potential trading opportunities and support/resistance levels.
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Chart Patterns:
Chart patterns like head and shoulders, double tops, and triangles can provide valuable insights into potential price changes.
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Market Sentiments:
Market sentiments are also considered one of the influencing factors in the price of gold. When investors have a positive outlook on gold, demand for gold increases, and its price rises. Conversely, if the inclination to buy gold is low, prices decrease.
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Economic Factors:
Traders utilizing technical analysis for gold should also stay informed about significant economic factors such as inflation, interest rates, geopolitical, and political events. With awareness of these factors, better decisions about buying and selling gold can be made.
Ounce of Gold Analysis
Ounce of Gold analysis refers to the process of analyzing the movements and trends in the price of gold. In forex trading, gold is typically measured in troy ounces (ozt). A troy ounce is a measurement unit commonly used for precious metals like gold, silver, and platinum. One troy ounce is equal to 31.1035 grams. When trading gold in forex, the price in US dollars per troy ounce is announced. For example, if the current price of gold is $1800 per troy ounce, it means one troy ounce of gold is worth $1800.
Gold Analysts
Gold analysts are individuals who possess high skills in analyzing the changes and trends of gold in the forex market. These analysts use various technical tools and fundamental analyses, such as economic indicators and political events, to predict prices. Analysts usually employ both fundamental and technical analysis methods. However, proficient analysts must have complete mastery of both types of analysis to make accurate predictions.
Gold Symbol in Forex
In the forex market, gold is represented by the symbol XAU/USD. The first part of the symbol, XAU, represents the chemical symbol for gold, while the second part, USD, indicates the United States dollar. Gold analysts and traders in the forex market use the XAU/USD symbol to predict increases or decreases in the price of gold relative to the dollar.
XAUUSD Technical Chart
The XAUUSD technical chart presents a visual pattern showing the changes in the price of gold over time. Technical analysts of gold can make decisions about buying or selling gold by studying this chart. The XAUUSD technical chart typically includes several indicators such as moving averages, the Relative Strength Index (RSI), and Bollinger Bands. Moving averages are used to smooth short-term fluctuations in the gold price. On the other hand, the RSI measures overbought or oversold conditions in the market. Bollinger Bands indicate market fluctuations by showing upper and lower ranges in which the price may oscillate. Mastery of this type of chart is crucial for informed decision-making.
Gold Analysis can offer several advantages in the forex market:
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Safe Haven Asset:
Gold is considered a safe haven asset during economic instability or market volatility, and its price tends to rise during such periods. Therefore, analyzing the price of gold can provide valuable insights into market sentiment.
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Inflation Indicator:
Gold is often used as an inflation indicator. If the price of gold is increasing, it indicates rising inflation and impacts the strength of the currency.
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Correlation with Currencies:
The price of gold is often correlated with specific currencies like the US dollar. Analyzing these correlations can help traders better understand the impact of gold price changes on currencies.
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Technical Analysis:
Similar to other financial assets, the price of gold can be analyzed using technical indicators and chart patterns. This analysis informs traders about potential trends or support and resistance levels.
If you’ve recently entered the forex market and are interested in the gold market, learning the analysis of this market should be your top priority. At STP Brokerage, a comprehensive training course from beginner to advanced levels in the forex market is provided, enabling all enthusiasts to engage in this exciting market as professional traders.
