Gold & currency exchange rates: why is gold more fruiful than money?

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Gold and currency are tightly intertwined. If one changes, the other may drastically change too. But how exactly does it work? Why do gold prices sometimes run counter to expectations? Read the article and make notes!

There are five key aspects that reveal the relationship of currency quotes and gold. 

1) Historically, gold is the guarantor of currency transactions


So it was back in the Byzantine Empire, and by the end of the 20th century gold still used to be a reserve asset. The gold standard existed in the US until 1971. It is important to note that not all countries had the right to issue money, because not all of them possessed gold. Some experts believe that the gold standard has to be reestablished, since exchange rates are too volatile.

gold prices

2) Gold protects against inflation


The advantage of gold is that it is impossible to be obtained artificially, so it is more stable than currencies. Example illustrate this vividly: in 2011, gold prices rose to $ 1,500 per ounce while the credibility of official currencies was low.


3) Gold prices influence exporting and importing countries


There is a pattern: the bigger the country's export ratio, the lower the official national currency rates. And vice versa. The same applies to gold: the more gold is exported (especially in case the country has gold deposits), the better it affects the quotation of the national currency.

4) Banks lower accounting currency rates when buying gold


When buying gold, central banks have an impact on the supply and demand of the national currency. How? The situation when banks buy gold and print more money, thus, amplifying inflation, is rather typical.

5) Gold prices don't always determine the price of regional currencies


Gold prices may rise when there is a high industrial demand for it. But it does not necessarily imply that a particular currency has a low exchange rate, because its value depends on other factors.

These economic and regenerating properties of gold make it more stable and profitable than paper money. Gold prices cannot be predicted hundred per cent, but the more you know about the gold market, the more opportunities you have to earn with gold.

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2 comments:

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