Lesson 2 of 7 · 9 min
Gold (XAU/USD): what drives it
How gold is quoted, what a lot and a pip mean on XAU/USD, why it needs wider stops and smaller sizes, and the four forces that move it.
By the end you'll be able to
- Convert XAU/USD lots into ounces and dollars per $1 move, and size a trade from the stop
- Explain why "pip" and "point" mean different things on gold, and plan in dollars per ounce instead
- Name the four main drivers of gold and which way each tends to push it
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On EUR/USD, 0.50 lots earns or loses $5 a pip. Open the same 0.50 lots on gold and an ordinary day can move the position by $2,000.
Gold moves in dollars
Illustrative XAU/USD chart, not real prices, on a $5,000 account risking 1%. A $5 stop is taken out by an ordinary wick; a stop beyond the structure, with a smaller size, survives the same noise for the same $50.
XAU/USD is the price of one troy ounce (about 31.1 grams) of gold in US dollars. XAU is gold’s code in the international currency list, so platforms show it like a pair, but it is a metal that pays no interest and has no issuer.
With most brokers one lot of gold is 100 ounces, so every $1 move is worth $100 per lot, $10 on 0.10 lots and $1 on 0.01 lots. Some platforms use other sizes, so open the contract specification before your first trade.
The units are where traders get caught. Gold is quoted to two decimals. Many MetaTrader-style platforms call the $0.01 step a point, many brokers call $0.10 a pip, and traders talk in dollars. A $5 move is 500 points, 50 pips or $5. Plan in dollars per ounce and convert at the end.
Gold’s normal day is around 1% of the price, about $40 at $4,000, and more on news. Stops have to sit outside that noise, which means fewer ounces for the same risk.
The four forces on gold
Gold pays nothing to hold, and most of its drivers come back to that.
- Real yields. A real yield is a bond’s interest rate after inflation. When safe US bonds pay well above inflation, holding gold means giving that up, so gold tends to struggle. When real yields fall, gold tends to attract buyers.
- The US dollar. Gold is priced in dollars. A stronger dollar tends to push XAU/USD down and a weaker one up, so gold often moves with EUR/USD.
- Risk mood. In fear, gold usually rises with the safe havens. The exception is a dash for cash: in March 2020 gold fell by more than 10% in about two weeks as investors sold everything to raise dollars.
- Central-bank buying. The World Gold Council puts central-bank purchases above 1,000 tonnes a year in 2022, 2023 and 2024. That steady demand helps explain why gold kept rising while real yields were high.
These are tendencies, and several pull at once. Day to day, the biggest moves often come on US inflation and jobs figures and Federal Reserve decisions, because those move yields and the dollar together.
Try it
| Time | Cur. | Impact | Event | Previous | Forecast | Actual |
|---|---|---|---|---|---|---|
| 13:30 | USD | ●●● | CPI (inflation, year on year) | 3.2% | 3.1% | — |
A mock US CPI release. Slide the actual figure away from the forecast and watch the illustrative EUR/USD reaction. Gold usually leans the same way: a hot number lifts the dollar and yields, which tends to weigh on XAU/USD.
Slide the CPI figure above the forecast, then below it: when EUR/USD falls on a hot number, expect XAU/USD to lean lower with it, and the reverse on a soft one.
Quick check
Quick check
Question 1 of 4
One lot of gold is 100 oz. You hold 0.10 lots and gold rises $12. What is the result?
Question 2 of 4
US real yields rise sharply. Which way does gold tend to lean?
Question 3 of 4
Your platform calls $0.10 a pip on gold. You set a 150-pip stop. How far away is it in dollars?
Question 4 of 4
A sudden market crash forces investors to sell everything for dollars. What can gold do?
Go deeper: XAU/USD trading guide · Safe-haven currencies · Risk-on vs risk-off