The effect of gold on the forex market
Gold and other precious metals such as silver, platinum and palladium have a distinct value as hard physical assets in addition to very important industrial applications. They even have value because of their ability to store an outsized amount of wealth during a fairly small space.
As a result, many of us hold gold to shield against inflationary pressures and to supply a medium of exchange within the tumultuous times when the worth of fiat currencies may fall. Moreover, there are many currencies at only once or another tied to gold or the so-called “gold standard”.
For example, from the mid-1940s to the first 1970s, gold determined the worth of most major currencies within the global forex markets under the Bretton Woods price system. The post-World War II system of fixed exchange rates collapsed within the early 1970s when President Nixon ordered the removal of the US dollar from the gold standard.
The following sections describe a number of the recent trading links between gold and a number of other major currencies.
euro and gold
Since 1980, when gold reached the previous record level of $850 an oz, the worth of gold gradually declined until 1999 when it dropped to an occasional of $257 an oz.. Interestingly, the decline within the price of gold roughly coincided with the entry of the euro in January of 1999.
Moreover, until a minimum of the recent Greek debt crisis, the euro generally appreciated in value against the US dollar due partly to the modest currency printing program overseen by the ecu financial organisation. This contrasts with the more active currency printing program supervised by the Federal Reserve within the us.
Australian dollar and gold
Another interesting link between gold and currencies involves the worth of the Australian dollar. Since gold has increased in value, the Australian dollar is mostly rising.
Essentially, this correlation must do with the very fact that Australia has large reserves of gold. Also, Australia may be a net exporter of gold, and therefore the valuable makes up an oversized proportion of its national exports.
These factors make the worth of the Australian dollar particularly liable to fluctuations within the price of gold, although its value is additionally tormented by the value of oil and other major raw materials. As a result, the Australian dollar is commonly noted because the commodity currency by forex traders.
Swiss franc and gold
In 2000, the Swiss franc became the last national folding money to be excluded from the long-established gold standard. before that point, Swiss franc enjoyed the status of a secure haven currency that maintained its intrinsic value when times got tough because it is freely convertible into gold.
The Swiss currency continues to learn from protection buying to a lower range thanks to its long history of political stability, neutrality and non-confliction. However, the currency’s previous close relationship with the worth of gold has significantly decreased.
US dollar and gold
Recently, because the U.S. continues to spend on its income by an oversized margin, under the guise of stimulating the country’s underdeveloped economy, investors are increasingly looking to gold as the way to hedge against the inevitable inflationary effects of increased government borrowing to print more currency. This has led to a recent inverse relationship between the worth of the US dollar and gold.
Moreover, as post-World War I Germany learned during the devastating hyperinflation of the first 1920s, this type of irresponsible economic policy might be a recipe for the currency’s downfall and its eventual replacement with a gold-linked currency – verity forex market standard.
