In the foreign exchange business, there are many parameters you have to take into consideration when making your investment choices. For example, many currencies and currency pairs are in direct relationship with certain assets. In this article on the relationship between forex, oil and gold we’ll discuss the effect two of the most important assets – gold and oil – have on some major currency pairs. Read on and find out what you need to look out for and what can be expected when it comes to these two important commodities.
Forex, oil and gold | Gold and Currency Pairs
We will begin our analysis of forex, oil and gold correlation with one of the basic assets in the market – gold. First, let’s make one thing clear: during the times of economic unrest, investors usually prefer gold over the USD. Although it’s one of the safest and most stable currencies, the USD still can’t be compared with gold. Unlike other assets, gold always maintains its value, so having some gold on the side is always a wise strategy. With that in mind, we can state that the relationship between gold and the USD is inversely proportional: when the dollar rises, gold falls. However, when it comes to the ‘gold – currency pairs’ relationship, gold has a positive correlation with AUD/USD. That’s because Australia is at the moment the third biggest gold producer in the entire world. In other words, when gold rises, AUD/USD also rises. When gold falls, AUD/USD will fall, as well. Another currency that has a strong correlation with gold is the Swiss franc. Since a big part of Switzerland’s money is backed by gold reserves (about 25%), the USD/CHF pair has a negative correlation with this asset.
Now it’s time to take a look at the “liquid” part of our forex, oil and gold trio. Keep reading and learn how trade currencies depending on that commodity!
Forex, oil and gold | Oil and the USD
Given the fact that oil is always quoted in USD, you can expect that oil price movements will affect Currency Crosses between that currency and the countries with significant oil reserves (Canada, Russia, Brazil). We will take a look at the relationship between USD/CAD pair to show how this works and the reason why we are going to discuss its influence on USD/CAD lies in the fact that Canada is one of the biggest oil producers in the world. More precisely, they export over 3 million barrels of petroleum and oil to the USA, meaning they are that country’s largest oil supplier. Since this demand is so big, it creates a big demand for the CAD. Consequently, if the US demand rises, prices will rise because manufacturers have to order more oil to keep up with demand. That means that when oil goes up, USD/CAD goes down, and vice versa.
Forex, oil and gold | Conclusion
As you can see from our analysis of the relationship between forex, oil and gold, gold and oil can have a massive impact on several of the most important currency pairs. If you keep an eye on those assets and incorporate them into your trading tactics, you will definitely increase your chance to win. These are two of the most important assets and you simply have to track their behavior if you want to be a serious trader. However, there are more things to learn, so browse around our website to improve your skills and to find a broker that allows you to trade all these commodities.