Gold which is seen as a commodity, currency and a metal plays a great role in the investment world, consumer world as well as the forex market. Although gold is not used as the basic form of currency in the world today, it remains to have a strong impact on other forms of currencies around the world. Gold rates and the United States dollar have always been seen to walk hand in hand. This reason is because the rate of forex exchange of gold is usually priced in the United States dollar and there will always be an existing correlation between a gold price and the USD currency.
Forex and gold rates is seen as the process of by which gold can be converted or exchanged for a particular currency. It is said to be defined as the value of gold in relation to a countries currency. In the same way a countries currency (the United States dollar) can be exchanged for another countries currency (the Japanese yen), a currency can also be exchanged for a gold and this is called a gold rate.
The price of gold rate is subsequently inversely related to the value of the USD which means that a stronger United States dollar leads to a decrease in the price of gold while a weakerUnited States dollar leads to an increase in price of gold. This reason is based on the fact that forex traders have a predisposition to invest and trade in dollar when the United States dollar is strong and when the dollar becomes weak due to economic uncertainty, forex traders engage in gold trades.
THE BASIC RELATIONSHIP BETWEEN FOREX AND GOLD RATES
Gold rates and the forex market have a lot of similarities and a close relationship. This is basically because they are both concerned by forex traders, have the same trading environment and possess the same forex investment opportunities. Gold and forex rates are both affected by the same factors which are political stability, economic instability, war and unrest.
Another relationship between both is that gold rates are majorly dominated by the dollar. This means that all fluctuations associated with the United States dollar rate has the same impact on the gold rate. The price of gold and that of the United States dollar have a statistical data of 80 percent negative correlation and this means that if the value of dollar should fall, that of gold will rise and if the value of dollar should increase, that of gold will decrease.
In conclusion, it is highly advised that forex traders should have enough investing knowledge and information on forex and gold rates before embarking into a trade. Forex traders are advised to make use of information on gold price websites in other to gain the trend of market on time.These websites have the tendency to historical data on gold rates and its calculations.
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