As gold affects the currency rates?
Gold is considered as one of the most popular metals in the world, both in the eyes of investors and consumers alike.
Although gold is no longer used as currency in the developed world, it continues to have an impact on the currency markets. Moreover, there is a strong correlation between the gold price and exchange rates.
To illustrate these relationships, the following aspects should be taken into account.
1) Previously, gold was used for the insurance of currencies not backed by gold.
Even in the times of the Byzantine Empire, gold was used as a guarantor
in transactions with different currencies not backed by gold.
Moreover, almost to the end of the XX century, gold played the role of reserve
asset; US used the "gold standard" until canceled
Nixon in 1971
One of the reasons for its use was limited number of countries,
had the right to issue money. This was due to the fact that up
before rejecting the "gold standard" of the government could not print
money not backed by gold.
Although the system of "gold standard" no longer applies in the countries
the developed world, a number of economists believe that it is necessary to return
in connection with a high degree of volatility and other dollar currency.
2) Gold is used in hedging inflation
As a rule, the demand for gold increases with an increase in inflation rates.
Investor interest in gold in this case, due to its self-value and limited supply.
For the reason that gold can not be obtained by artificial means, it
much more stable than the usual currency. For example, in April 2011, when
investors feared devaluation of the official currency, gold price
up to $ 1,500 per ounce. This indicated a low degree of
confidence in the world's major currencies and pointed to the grim economic
prospects.
3) The price of gold is reflected in the situation in countries that import and export the metal.
The course of any currency is closely linked to the export and import figures.
If a country imports more than it exports, public course
currency falls. Otherwise, bucking the trend, and the rate
It is growing.
Thus, if the price of gold increases, the country,
exporting gold or having access to its reserves, exchange rate
the national currency will continue to grow.
In other words, the rise in gold prices may contribute
achieving trade surplus or, at least, will reduce the
deficit.
On the contrary, in countries importing gold on a large scale, the course
the national currency will decline when the price of gold will rise.
For example, countries that specialize in creating jewelry, but
not have their own resources of gold, the gold will be imported.
They are particularly sensitive to a rise in the prices
metal.
4) Buying of gold, banks lower value of the currency is used in the calculations.
Buying gold, central banks influence the supply and demand balance
the national currency, which could lead to inflation. This is largely
due to the fact that when buying gold cans are usually printed
money, increasing the amount of money in circulation.
5) The price of gold is often used in determining the value of regional currencies, but there are exceptions.
Many people mistakenly believe that gold can always be used when
determining the value of the local currency of any country. Although
gold prices affect currency rates, this is not always
There is a clear inverse relationship, as many believe.
For example, the price of gold may rise at a high demand for this
metal in the industry, using it in the production process.
However, it does not talk about reducing the rate of regional
currency, which currently can be quite high.
Thus, the price of gold can be used in the evaluation of the course
dollar, but to determine whether the inverse relationship, you must
take all market conditions into account.
conclusion
Gold has a strong influence on the quotations of world currencies. Even
despite the rejection of the "gold standard", gold can be used
As an alternative to paper currencies and protect against inflation.
Undoubtedly, gold will continue to play an important role in the currency markets.
On this basis, we can conclude that gold is
a unique asset that can reflect the state of both regional and
global economies.
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