What Is XAU/USD? How Gold Is Quoted and Traded
XAU/USD is the ticker you will see on almost every trading platform for spot gold. It looks like a currency pair, and in many ways it behaves like one. XAU is the ISO 4217 code for gold: the standard assigns codes beginning with X to things that are not issued by a country, and AU is the chemical symbol for gold (from the Latin aurum). USD is the US dollar. So XAU/USD simply means "gold priced in US dollars" — specifically, the number of US dollars it takes to buy one troy ounce of gold.
The troy ounce matters. It is not the same as the ordinary avoirdupois ounce used for groceries; a troy ounce is roughly 31.1 grams, about ten percent heavier. Gold, silver, platinum and palladium are all conventionally weighed in troy ounces, and the quote you see on screen is always per troy ounce unless a platform explicitly says otherwise.
Because gold is quoted against the dollar, a move in XAU/USD can come from either side of the pair. If the dollar weakens broadly against other currencies, gold often appears to rise even if nothing has changed in physical gold demand, simply because it now takes more dollars to buy the same ounce. The reverse is also true. This is why gold and the US dollar index frequently — though not always — move in opposite directions, and why traders watch dollar strength as closely as they watch gold-specific news.
The core gold market is over-the-counter rather than exchange-based. Most wholesale spot trading is organised around London, where bullion banks and brokers deal in standardised bars, with settlement conventionally two business days after the trade. Alongside this sits a large futures market, most notably in the US, where standardised contracts for future delivery trade on an exchange. Retail platforms usually offer exposure through derivative products — contracts for difference or rolling spot contracts — where you never take delivery of metal. You are trading the price difference, and the position is typically rolled or financed daily, which can mean small overnight charges or credits depending on prevailing rates and the direction of your trade.
Quoting conventions are worth learning early. Gold is usually quoted to two decimal places, so a one-cent move per ounce is the smallest increment, though some venues quote three decimals. Platforms differ on what they call a "pip" in gold, so check the contract specification rather than assuming. A standard contract size on many retail platforms is 100 troy ounces, with mini and micro sizes also common. The practical implication is that a given price move translates into very different money depending on contract size: with a 100-ounce position, a 1-dollar move in the quoted price is 100 dollars of profit or loss — an illustrative example only, but it shows why size selection matters more than almost anything else.
Gold trades nearly around the clock on weekdays, following the handover from Asian to European to US sessions, with a short daily break and a weekend close. Liquidity tends to be deepest when London and New York overlap, which is also when spreads are usually tightest and when major US economic releases land. Spreads can widen noticeably around data, holidays and the session rollover.
As for what drives the price: real interest rates are a central influence, because gold pays no interest or dividend, so higher real yields raise the opportunity cost of holding it. Inflation expectations, central bank buying and selling, jewellery and industrial demand, mine supply, and shifts in risk appetite all contribute. Gold is widely treated as a defensive asset during periods of stress, though it does not behave defensively in every episode, and it can fall sharply when investors are forced to raise cash.
A final mechanical point: gold products are very often offered with margin, meaning you post only a fraction of the notional value. Margin magnifies losses exactly as it magnifies gains, and gold can move quickly enough that a modest adverse swing wipes out a large share of a small account. Defining position size in advance and placing a stop-loss are ways to cap how much a single trade can cost you — they limit damage, they do not create profit, and stops can be filled at worse levels than requested during fast or gapping markets.
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This article is for general education only — not financial advice, and nothing here is a recommendation to buy or sell any currency or metal. Trading forex and gold carries a high risk of loss; leverage magnifies losses as well as gains, and many retail traders lose money. Always do your own research before making a financial decision.
