Back to Basics: Examining the XAU

Traders often talk about the XAU, but what does it stand for? It's the ticker symbol for the Philadelphia Stock Exchange Gold and Silver index, which tracks the performance of a basket of gold and silver mining stocks.

Investors often get interested in this index during times of uncertainty, when anxiety triggers a rise in gold prices. This so-called "flight to gold" often leads to a strong performance in the XAU when other sectors of the market have been performing poorly. For that reason, some traders attempt to hedge their exposure to stock market volatility by placing bullish trades on the XAU.

Any index is really just an average of stock prices. For example, the S&P 500 index represents the average of 500 stocks. When the index rises, it suggests that most stocks are moving higher.

On the other hand, when the S&P 500 moves lower, it suggests that the stock market is falling. While the S&P 500 is used to gauge the performance of the whole stock market, some indices are designed to track the performance of specific industry groups. The XAU is an example of one of those sector indices. ...