What is the relationship to currencies and gold, and how will this help one’s forex investing or trading strategies? Gold has a very long history of being not only a highly valuable asset, precious metal and sign of great wealth. But it has also been used either as a currency itself or as an asset that backs currencies. In fact, gold was the hard asset that backed currencies until 1971, with minor gaps in between when certain currencies were taken off the gold standard. Keep on reading for more tips on how to play the stock market.
Economic Significance of Gold Today
Although we are no longer on the gold standard today, it still plays a very valuable part in our economy. More recently, it has become the safe haven investment of the world, second only to the US dollar. Many traders and economists use the price of gold to give indications of how investors are feeling about the global economy.
With the longevity of the value of gold, it is the one thing that won’t crash or go bankrupt. Even the almighty US dollar could crash if the US continues it’s enormous deficits or if China decides to sell all of their US cash which they have in reserve in abundance. Companies may fall, even sovereign states may go bankrupt like what is happening in Greece, Portugal, and Spain. But gold will be the last to go. When there is fear in the economy, the safest haven is in gold.
So currency traders look very closely at gold prices when they are trading in the forex market. All forex trading strategies should take into consideration the movement of the price of gold. In fact, whenever you are looking at a system, you should consider what the implications will be in the gold market. All these information including information about investing in gold ETF can be learned when you take up a Forex trading course.
The relationships are so close that many forex brokers offer trading in gold along with the major currency pairs. In fact, even many of the forex demo accounts offer trading in gold. So not only can you observe the relationship between the forex and gold markets, you can actually trade them.
Gold has to be one of the main components to your trading strategy. Even if you don’t buy it yourself, you should use it as a key indicator since it is so closely tied to foreign currencies, primarily the USD and the stock market in general.
You could even do technical analysis on gold, then trade all of it’s related securities accordingly. For example, if you see that gold might be on it’s way down, you could fairly predict that the USD and the stock market will be on it’s way up. If you see that gold is on it’s way up, it might signal a continued decline in the stock market and the global economy in general. If prices of gold spike, that might mean that there is a decline in the economy and that there is a recession coming up ahead.
Any way you look at it, you should make up your own forex investment guide so you have a clear plan on what to do in any given investing situation.
I believe there is a psychological affinity to gold in forex trading strategies. If the USD did crash, it is unlikely that gold would actually be of help, just like with many types of trading like currency futures trading or E currency trading. It is all susceptible to market volatility If it got that bad, food, water and other commodities would be in high demand.