Gold and exchange rates - these two tools of trade always had a pretty close relationship. Traders can use this factor to predict the trend for the currency pairs and the price of this precious metal.The primary factors that influence this relationship are the dependence of the economy on the price of gold and a place of a particular currency in the global currency market.
First of all the price of gold affect the value of the currencies of those countries that are its main producers, for example, Australia, which on average produces about 300 tons of gold per year. It is clear that a significant rise in price of the metal will greatly increase the flow of funds from its sale.
But it should be noted that not all the currencies of the countries producing gold behave similarly to the American dollar. Sometimes other, more powerful factors, may come into play.
For example, the outflow of investment - in this case we are talking about temporary or permanent storage of available funds of investors. A person or company, with its pretty solid capital is always trying to protect it from inflation, while the funds are held in the most liquid products that can be implemented quickly. That is, they keep it in gold or major currencies, so reducing prices on popular currency causes a rise in gold.
Usually this is as follows, in the press appears a number of reports about the weakening of the dollar. The stronger such news is, the sharper fall of the currency. Most of the Forex traders are trying to get rid of a weakening currency, but it needs to be changed with the two most popular options – to gold or to other currency. In our situation, the other currencies may be a euro, the Swiss franc or the British pound.
But what if the alternative currency is also showing a downward trend? Then it remains only to invest in gold.
In order to help identify how linked the price of gold and exchange rates among major currencies, a trader should simply open the trading terminal for the pair XAUUSD and several other with the dollar or another currency. After that, he compares the graphs for the equal amount of time and on the basis of the findings determines the sign of correlation - positive or negative, and the reaction time – what rises first, gold or a currency.
Gold is a quite complicated instrument for trading, so it is recommended to very beginners to refrain from using it
