US Dollar is only backed by the full faith and credit of the US Government. Most of the currencies in the world are free floating now. Many countries are also purchasing gold in the open markets as a hedge of their foreign reserves most of which are in US Dollar.

In the present financial crisis with the global economy in recession, many investors are trying to take refuge in gold as the ultimate safe haven of their wealth from financial turmoil.

The Australian Dollar (AUD) is known for its strong correlation with gold prices among the different currencies in the world. This correlation is due to fact that Australia has gold deposits and exports gold.

On the other hand, USD has an inverse relationship with gold prices. Gold prices rise, USD falls in value. This causes the currency pair AUD/USD to appreciate in value when gold prices rise.

When both gold and oil are commodities, we use CCI for trading crude oil but why don’t we use CCI for gold as well? Why is that we are using RSI now?

CCI gives a quicker signal. This is good for relatively less volatile pairs like USD/CAD. Whereas RSI gives slower signals, this is ideal for more volatile pairs like AUD/USD. It all depends on how quickly the two indicators react to volatility.

Enter a long trade on AUD/USD if the gold prices are rising and the RSI is crossing back above the 30 line. On the other hand, enter a short trade on AUD/USD pair if the gold prices are declining and the RSI is crossing below the 70 line.

First we need to confirm the uptrend in the gold prices. Use moving averages to confirm that there is an uptrend in the gold market. Now, use the Seven Period RSI Indicator on your daily AUD/USD chart. When RSI crosses below the 30 line and then crosses back above the 30 line, enter a long trade. In the same manner when the RSI moves above the 70 line and then falls below the 70 line, enter a short trade.

50 pips stop loss means a $500 loss if the trade does not go in your favor. It is not uncommon to have a trade go against you only to find yourself right back in trade that goes your way.

Mr. Ahmad Hassam has done Masters from Harvard University. Get these Correlation Trading Cheatsheets by Jason Fielder FREE. Get these 3 Swing Trading Systems FREE.