The Effect of Gold on Foreign Exchange Print E-mail
Gold is more than just a precious metal—it’s a symbolism for wealth and status not just among individuals but also across nations. There’s a notion that when one acquires gold, it can provide financial security. However, there’s more to gold than just being a valuable commodity, because it has an impact on forex as well. How exactly does the price of gold affect foreign exchange currencies? According to the forex blog Ikon Group, there are multiple ways. First, gold can be used to evade inflation, since during this period demands for the metal increase. Buying gold can also decrease a currency’s value through gold trading. Gold prices also have an impact on import and export rates. 

The forex market is also majorly affected by gold. Historically, gold is the main determinant of major market currencies on a global scale, especially between the 40s and 70s. Forex Traders, a website that deals with foreign exchange strategies, emphasized this point by individually explaining how gold affects Euros, Australian dollars, Swiss francs, as well as the US Dollar. In a similar vein, the gold trading and investment site Bullion Vault, in an analysis, describes how gold prices slip due to the recent volatility in forex rates, bonds, and commodities. This just proves that the relationship between forex and gold is a two-way street; gold prices are also affected when forex rates fluctuate. 

On the other hand, how does the foreign exchange market affect gold? FX Exchange Rate tells us that according to statistics, gold prices and the US dollar exchange rate have a negative correlation of about 80%. This means that they’re inversely proportional; if the dollar falls, gold prices increase, and vice versa. Therefore, it is advised by investment experts to think hard before investing—verify the status of both gold prices and forex rates in order to gauge the current trends.

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