Further Discussion About Gold’s Influence on the Forex Market
As we have stated in the previous discussion that gold is a precious metal that has intrinsic value which makes it a valuable asset. Besides that, gold also has a high value because of its ability to be stored in a variety of shapes ranging from very small sizes to bars.
This high value of gold is what makes a lot of people use gold as a treasure to protect the wealth from the erosion of inflation.
In the previous discussion, we have conveyed some of the effects of gold on a currency value and forex trading. In this article, we will continue to discuss the influence of gold on the currencies in the world more specifically.
Euro and Gold Relations
Gold had experienced the highest record increase since 1980 at a price of USD 850 / Ounce, then continued to decline gradually until 1999. When the price of gold declined at USD 257 / Ounce the unique thing was the low gold price coincided with the introduction of the Euro as a European currency in January 1999.
Furthermore, before the Greek debt crisis occurred, the Euro value tended to increase in value compared to the USD. This happened because it was related to a more moderate money printing program overseen by the European Central Bank.
This is very inversely proportional to the USD printing program which is more actively supervised by the Fed as the United States central bank.
AUD and Gold
A very interesting thing happened to the relationship between gold and AUD currency, where when the price of gold increased in value, then this tends to make AUD prices rise as well.
The above can occur because Australia has a very large amount of gold reserves. In addition, Australia also includes countries that export gold to other countries and precious metals are export products with a large percentage.
This is also what makes AUD tend to be vulnerable to gold price movements in the world. Nevertheless, there are still other factors that affect the value of the Australian currency such as raw materials and crude oil.
An interesting relationship with gold is what makes the Australian currency called a commodity currency by forex traders.
Swiss Franc (CHF) and Gold
The first fact you need to understand about the Swiss Franc is that this currency turned out to be the last currency to come out of the gold standard that came into effect in 2000. Before 2000, the Swiss currency was seen as a Safe Haven currency because they were able to maintain their intrinsic value when difficult .This is also what allows the Swiss Franc to be converted into gold form freely.
Nevertheless the Franc currency still gets the status as a safe currency because of political stability in the country and the least conflict in Switzerland. But its relationship with gold is much reduced compared to still maintaining the golden rule before 2000.
USD and Gold
The US government has spent more state revenue than revenues earned. With reasons to stimulate the economy, this step actually makes investors switch to protecting their wealth by buying gold.
Inflation cannot be avoided on the above events and this happens because of government loans to print paper money more. This is what made the gold and USD relations very bad at the time.
Is there a way to estimate the gold price?
In forex trading, every trader must understand that gold and USD have opposite directions. This means that when the USD increases, the price of gold will fall.Likewise vice versa when the value of USD has decreased.
Factors That Make Gold Prices Decline
– Improving the Economic Conditions of a Country
When a country’s economy has improved from period to period, this will usually burden the price of gold. At this time the inflation rate has become more stable and this has made the economy better.
-When interest rates increase
When the FOMC holds a meeting and implements a plan that will be carried out such as an increase in interest rates. So this event is definitely something that every investor awaits, where an increase in interest rates can make gold prices decline.
-When the Gold Industry Is Down
When gold is produced excessively, this can make gold prices decline and this is very burdensome for gold producers.
Gold producer companies experience an increase in debt and make them difficult to develop.
What is the price of gold in the country?
When gold prices in the world experience a decline in value due to the improving US economy, this makes the domestic gold price depressed. This makes the relationship between foreign and domestic gold prices almost in the direction of its movement.
Likewise, when there is a threat of a crisis in the United States and Europe that is reduced and foreign currencies continue to strengthen, consequently gold prices will continue to weaken.
There are many forms of relations between gold and currencies in the world.There are those who have a positive and unidirectional relationship, some are negatively or opposite. As a trader, you must understand well the relationship between the price of gold and the currency being traded. In order not to make you make an analysis error that makes a loss on the trading done.
Understanding the influence of gold is very important to be done by forex traders, because gold has a very unique relationship with the value of currencies in the world.
If you still have questions related to the discussion above, do not hesitate to ask through the comments column below. We will be happy to answer every question that comes in to increase your knowledge about gold relations and forex trading.
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We hope the information above can enlighten you all who read and help you make better trading decisions.
Good luck and safe trading!