By James McKee
Many who fear the collapse of their currency have begun to buy gold since it is not vulnerable to inflation. The increased purchase of gold has caused a slight scarcity in the supply that has caused a rise in the price. The price of gold also rises in correlation with the devaluation of currency and so we have noticed a surge in the price of gold due to a drop in the value of currency. This type of increase in value makes gold very appealing to many people since it is “inflation proof” and rises and falls with the value of the dollar.
Watching the value of gold against the value of a given currency will give you insight with regard to the direction it will take on the forex currency exchange. The fact that gold has risen so sharply against the US dollar is a signal that it is losing significant value due to recent quantitative easings by the Federal Reserve Bank. Since the US dollar and the value of gold are both rising in unison there is a good chance that the US dollar will fall and the value of gold will continue to rise.
Betting against the dollar with the AUD for instance would be a great idea since Australian currency is directly linked to the value of gold since it is third largest producer of gold in the world. The Bank of Japan’s measures have been quite ineffective lately in devaluing the Japanese Yen and a correction is in the works. The JPY|USD is a great pair to watch for the near future since it will be a highly profitable differential in the near future. You should of course continue to watch it closely and use an investment of no longer than a couple hours, this is not an intraday trade.
About the Author
Author is a Forex trader and financial analyst residing in Denver, Colorado. To stay up to date on all the latest developments in the financial world and beyond be sure to check out the forex exchange rates regularly.
