Is Gold Very Important For Forex?
The activity you do when deciding to trade forex is to buy and sell a pair of currencies through an online platform . Buying and selling forex is almost the same as stock investment, it’s just that forex trading is more simple and flexible where trading is open for 24 hours, in contrast to stocks which are usually only open from 9 to 4 pm.
Although stated more simply than the stock transaction, forex trading also has a big risk. You need to trade using the right calculation and be good at reading opportunities so that the profits gained from forex trading are in line with your predictions. Before starting forex real trading, you can also do simulations in advance using the free simulation features provided by the forex platform . This will help you understand forex performance before you actually jump into it.
The principle of buying and selling in forex is buying long and selling short. Buying long is done by buying the predicted currency will strengthen its value in long position . While selling short is selling currencies that are in short positions or that are predicted to weaken.
Gold in Forex
Did you know, in forex, besides being influenced by the movement of the value of a currency pair, gold also has a share in it? Then, what relationship is built between forex with gold? We know if gold is one of the most popular investments by society. One reason is because gold has a value that tends to be stable even increase in the long term. Even the existence of gold can help the situation when inflation is being hit. As a result, if inflation comes many people flock to exchange their money with gold which results in a decrease in the value of paper money. Because of the strong value of gold, there is a gold standard that is used as a benchmark for currency values. This is the reason why gold is said to have an influence on the trading of world currencies. In addition to the above illustrations, here are some reasons that explain that gold has an influence on the world currency.
Gold has been a benchmark for currencies – Until the 1970s, the US Government just stopped the system which made gold a benchmark for a country’s currency.When a country implements this system, the value of the currency held is equal to the value of the gold stored. The living owner goes to the bank and exchanges the money he owns with gold if he wants it. This system was terminated because the lack was that the state had limited circulation of money because it had to adjust to the amount of gold held by banks which led to deflation.
Gold as a protector of inflation – The thing we know that when inflation occurs where the value of a currency decreases, then the price of gold can be said to remain stable and even increase. Therefore, many people exchange their paper money with gold when inflation occurs. This is done to keep the wealth not eroded or impaired. When the economy of the country is in a state of uncertainty then the gold price tends to be stable or even increase.
Effect of gold prices on export or import activities – When a country imports a lot, the country’s currency declines and so does if the country exports a lot, the currency will strengthen compared to the dollar. This also applies to gold, if the country exports a lot of gold, the value of gold will increase along with the value of its currency.
Central Bank Gold Purchases – When the Central Bank buys gold from a country, the two countries that trade gold will experience their respective effects. When a country no longer uses gold as a currency support, the Central Bank of another country will flock to buy gold from that country to store. As a result, the value of gold in the country will be high while the value of money will decrease. Whereas for countries that buy gold from other countries have the consequence of printing more money in accordance with the gold that will be bought and greater opens the possibility of inflation.
Various reasons that underlie the relationship between the value of money and the value of gold above need to be understood by traders before trading forex. Because, it could be if the currency pair that you want to buy has a high value while the gold price in the country is low, the value of your currency will also be affected.