Gold and exchange rates.

Currency correlation is one of the key aspects that is widely used in Forex trading, but at the same time, there are other options for the relationship between exchange rates, for example with the price of gold.

Gold and exchange rates, these two instruments of trading on the stock exchange, have always had a fairly close relationship.

This made it possible to use this factor to predict trends in currency pairs and prices for a given precious metal. The main factors that influence this relationship are the dependence of the country’s economy on the price of gold and the place of a particular currency in the global foreign exchange market.

First of all, the price of gold affects 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 this metal will significantly increase the flow of funds from its sale. In addition, an increase in confidence in gold itself causes a strengthening of the currency, which is quite well backed by it. However, it should be noted that not all currencies of gold-mining countries behave similarly to the American dollar.

Sometimes other stronger factors may come into play. For example, the outflow of investments, in this case we are talking about temporary or permanent storage of available funds from investors. A person or company with fairly substantial capital always tries to protect it from inflation, while the funds are stored in the most liquid products that can be quickly sold. That is, in gold or major world currencies, so a decrease in the price of popular currencies causes gold to rise.

This usually happens as follows: a number of reports appear in the press about the weakening of the American dollar; the stronger such news, the more sharply the rate begins to fall.

Most players both in the Forex and interbank markets are trying to get rid of the weakening currency, but it needs to be exchanged for something, and there are two most popular options - gold and another currency. In our situation, the other currency could be the euro, Swiss franc or pound sterling. What if there is a downward trend , then all that remains is to invest in gold.

In order to identify how the price of gold and the rates of major currencies are interconnected, simply open a movement chart for the XAUUSD currency pair and several other instruments involving the dollar or other currency in the trader’s trading terminal.

Then compare the graphs for an equal period of time. Then, based on the conclusions drawn, we determine the sign of the correlation (positive or negative) and the reaction time - gold grows first after the currency or vice versa. Gold is a rather complex trading tool, so novice traders are advised to refrain from using it at first.