How to read a spot gold quote
Reading a spot gold quote is very similar to reading a forex quote. It is even represented the same way (XAU/USD) and it's simple if you remember three things:
- The first symbol listed is 1 troy ounce of gold
- The value of the gold is always 1.
- The price literally translates to; 1 ounce of gold is equal to XXX.XX U.S. dollars.
When the price or quote for gold goes up, gold has strengthened in value and is now worth more dollars than before. If the price of gold goes down, it takes fewer dollars to purchase 1 ounce of gold, and the value of the dollar has increased when compared to the value of gold.
Bids, asks and the spread
Just like other markets, spot gold and forex quotes consist of two sides, the bid and the ask:
The BID is the price at which you can SELL.
The ASK is the price at which you can BUY.
The difference between the bid and ask prices is called the spread.
What does it all mean?
Gold prices are quoted internationally in U.S. dollars per troy ounce. A quote of 900.25 means that 1 oz gold is equal to $900.25. If you buy a single lot of gold (1 lot = 10 oz) at this price and sell it at a higher price, your profit would be the difference between these two prices. In this way, trading spot gold on FOREX.com's trading platforms is nearly identical to trading currencies.
A typical quote you might receive for spot gold is 900.25/75. This means that you could sell one or more lot(s) of gold at 900.25, or buy (s) at 900.75. The spread you would pay in this example would be the difference between these two prices (900.75-900.25) or 0.50.
The dollar amount represented by the change in price will depend upon the size of the trade you have placed. The smallest amount you can trade with FOREX.com is 1 lot, which represents 10 troy oz. At 1 lot, the smallest price change possible (0.01) is equivalent to $0.10.
Let's look at an example:
Let's say you decided to buy 1 lot of XAU/USD (spot gold) at 900.25.
A few minutes later, the bid (or sell) price has risen to 900.95, and you decide to exit your trade. You bought 1 lot at 900.25 and sold at 900.95, making 70 pips in the process. 70 pips, at $0.10 per pip, equal $7.00.
