The Connection Between Forex And Gold

1. The Connection Between Forex
And Gold

2. Points To Be Discussed Today:
• The Value Of A Currency Against Gold
• Gold To Be Traded On The Free Market
• Gold In Relation To Their Currency
• Correlation Between Gold And Forex
• What Moves Gold’s Price?
• Gold As A Currency Stabilizer
• Gold Spot / U.S. Dollar

3. The Value Of A Currency Against Gold
• Up until the mid 20th century, global
currencies were directly linked to the amount
of gold reserves they held, controlling the
amount of paper money they could print and
the potential value of their currency.
• This was referred to as the Gold Standard,
because it standardized the value of a
currency against Gold.

4. Gold To Be Traded On The Free
Market
• While this kept national currencies in check, it
had some noticeable flaws such as a lack of
flexibility and an assumption that all national
banks remain transparent.
• In 1973, the US went off the gold standard,
allowing Gold to be traded on the free market
while the US dollar would be controlled by the US
Federal Reserve.
• This brought the greenback unprecedented
volatility as the country was adjusting to a new
system of controlling inflation.

5. Gold In Relation To Their Currency
• Today, the dollar has stabilized and traders
look at XAU/USD to closely track the price
movements between these valuable
instruments.
• Understanding the way today’s central banks
use Gold in relation to their currency helps
traders to understand the relationship
between Gold and the Forex market.

6. Gold As A Currency
• The ending of the Gold Standard did not put
an end to Gold’s value.
• On the contrary, it allowed Gold to become a
global “currency”, recognized by traders,
individuals, and even governments as holding
value.
• This global recognition created a type of
international currency that governments can
use to exchange for paper currency and more.

7. Gold Is Valued In Relation To Global
Currencies
• Unlike paper currency, there is no central bank
to stabilize its value.
• Instead, value is decided by a free market
where governments and traders influence its
price.
• This independence from central control can
tell us a lot about how Gold is valued in
relation to global currencies.

8. Gold A Significant Power Over
Currencies
• This has given Gold a significant power
over currencies and the governments
that hold a large reserve of it.
• When countries hold large gold reserves
with respect to the amount of cash in
circulation, their currency is viewed as
stable.

9. Central Banks Purchase Gold As A
Means To Stabilize Their Currency
• If they choose to sell some of their gold, their
currency value rises since they now hold a
greater amount of foreign currency.
• On the other hand, central banks that wish to
purchase gold as a means to stabilize their
currency must print more money to fund their
transaction, temporarily devaluing their paper
currency in the process.

10. Correlation Between Gold And Forex
• The correlation between Gold and paper
currencies is a give and take that has been taking
place for decades.
• Countries use gold to increase the value of their
currency but must devalue their currency in order
to obtain it.
• From the perspective of traders, Gold is yet
another currency where they can park their value
in times of instability or currency deflation.

11. Gold And Its Value
• While there is no certainty that Gold will retain its
value, traders rely on historical prices to estimate
that a falling paper currency may instill a lack of
confidence in the currency, creating a further
devaluation of said currency.
• Other events that can affect the value of a
currency are inflation, political uncertainty,
significant trade deficits, and any other significant
event which may affect its value.

12. Gold And Its Value - I
• As a currency drops, traders may turn to gold.
• If enough traders turn to gold at a given time
and create waves in the market, it will
increase demand without introducing a
matched supply, causing the commodity to
climb in line with demand.
• On the other hand, if individuals invest in a
stable currency and new Gold supply exceeds
demand, then the price may fall.

13. Gold And Its Value - II
• For example, when a trader holds GBP and
recognizes that there is a large trade deficit
within the EU, which has resulted in a
devaluation of the British Pound, he may look
to gold as its value may be on the rise in
comparison to the currency he holds.
• On the other hand, if an investor is holding
Gold and the value of GBP rises, he may shift
his investments towards currencies.

14. One Of Many Factors
• While Gold holds influence over the value and
stability of currencies, it is just one factor among
many that can shift a currency’s value.
• Global markets, political events, central bank
decisions, trade, and a slew of other events can
affect the value of a currency, as well as gold,
rapidly or over time.
• Individuals who trade in the Forex market can use
Gold as an additional instrument, allowing them
to make trades on the precious metal alongside
the movements of global currencies.

15. What Moves Gold’s Price?
• From ancient civilizations to the modern
age, individuals have relied on Gold for
beauty, industrial uses, and as a store of
value.
• This precious metal’s history has been an
investor’s go-to during times of economic
instability, political upheaval, and even
during rallying markets.

16. Factors Affecting Gold’s Price
• Given its high global demand, Gold’s
price fluctuations may be triggered by a
large number of global factors.
• Such as inflation, supply, demand, and
even trader sentiment, keeping the
XAU/USD continuously on the move.

17. Gold As A Currency Stabilizer
• Gold is used by various countries’ central
banks to stabilize the currency.
• Having large stores of Gold in a country’s
central bank system is seen as a tool for
backing the value of their money with a hard
commodity.
• When a currency becomes devalued, the
government may authorize a large purchase
of gold for its central bank.

18. Gold As A Currency Stabilizer - I
• At times these deals will be large enough to
impact the Gold market since traders
recognize large quantities being purchased or
transferred and therefore being removed from
the open market for trade, triggering a price
shift.
• When executed properly by central banks, it
offers a quick fix to the currency by instilling
trust once again.

19. Gold Spot / U.S. Dollar

20. The Connection Between Forex
And Gold

21. THANKS FOR LISTENING
The Connection Between Forex And
Gold