Here is a very useful article on currency trading Australia that looks at the relationship between the Aussie dollar and the price of gold.

If you are interested in Australian dollar currency pairs, you need to know about some of the special factors that affect the price of this curreny. It does not matter whether or not you live in Oz, you still may want to trade this currency from time to time. It can have benefits because the Aussie dollar sometimes stays more stable when other major currencies are very volatile. This is partly because of its position as a commodity currency.

Commodity currencies are the currencies of countries whose main exports are in raw materials rather than manufactured goods or services. Raw materials can include food and other agricultural products, iron and other metals, gem stones, oil, etc. In Australia, the main commodity export is gold.

When the average consumer thinks of gold they usually equate it with jewelry. However, in the world of investments, gold is bought and sold more for its commodity value than for use. Gold is something that often preserves its value in times of economic crisis. For example if there is rampant inflation or a major stock market crash, the average person’s savings will often become almost worthless but an investment held in gold will maintain or more likely increase its value.

Australia is one of the world’s largest sources of mined gold. Production levels have fluctuated a little due to the effect of internal taxation but broadly speaking, Australian gold production has risen from just 20 tonnes a year in the late 1970s to around 300 tonnes a year today.

Because of this, there is a close correlation between the price of gold and the value of the Australian dollar. Interestingly, even though the USA is another major source of gold, even producing slightly more than Australia, the price of the AUD/USD currency pair is also closely correlated with the price of gold, other things being equal. This is because gold is not such an important factor in the huge American economy as it is in Australia.

So when gold prices rise, the price of AUD/USD will often also rise, and when gold falls AUD/USD is likely to fall. Often there is a little delay before the currency price reacts so a foreign exchange trader involved in AUD/USD has the opportunity to use this to his advantage.

You can also expect that commodity prices in general and gold in particular will go up when there is any major economic crisis in the world. Provided that Australia is not too closely involved in a crash, that is often another early indication of an upcoming rise in the price of AUD/USD.

Of course, gold is not the only factor here and if you want to trade AUD/USD or other Australian dollar currency pairs you will need to stay informed about anything else that might affect the price. You can never completely remove the risk involved in forex trading. However, understanding the influence of gold prices on the Aussie dollar will be of benefit to you if you want to make money from currency trading Australia.

Filed under: Forex Market

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