Reading a Spot Gold Quote
As we mentioned in “How to Trade Spot Gold,” when you trade spot gold, you take a long or short position in gold while you take the opposite position in the U.S. dollar. To get started trading spot gold, however, it is important to understand how to read a spot gold quote.
As in other financial markets, including forex, spot gold quotes consist of two sides: the bid and the ask. The bid is the price at which you can sell, and the ask is the price at which you can buy.
Before we move on, note that spot gold prices are quoted internationally in U.S. dollars per “troy” ounce. So, a quote of 800 means that one ounce of gold equals $800.
Note that you might receive a quote for spot gold that looks like 800 / 801. This means that you could sell a lot of spot gold at $800, or buy at $801. So, the spread—the difference between the bid price and ask price—is $1.
If you buy spot gold and sell it at a higher price, your profit is simply the difference between these two prices.
The first thing it is important to know about reading a spot gold quote is that the quote looks similar to a forex quote, being represented the same way (XAU/USD). The first symbol listed represents one troy ounce of gold. So the price quote—which may look something like 800 XAU/USD—simply means that one ounce of gold is equal to $800 U.S. dollars. (The dollar amount fluctuates, of course.)
It’s easier to understand trading spot gold when looking at an example. Let’s say you buy a single lot of gold—a lot equaling 10 ounces—at $800 per ounce, so $8,000 total. The spot gold market rallies, and a few hours later you sell the spot gold at $805 per ounce, or $8,050 total. You made $50.
You could also say you made 500 “pips.” What is a pip? Like forex prices, spot gold prices are quoted in small increments called percentages in point, or pips. Each pip represents $0.10.