Gold

About XAU/USD

Gold is a precious metal that plays an important role in world markets. Scientifically speaking, gold is an element just like any other, but its value to people goes far beyond that. Along with being useful in manufacturing and jewelry, gold is perceived as a hedge against inflation.

About Gold

At one time, the major world currencies were all on a gold standard. Now, however, world currencies are largely fiat currencies, meaning their value is exactly what the market decides it is. That said, gold still plays a role in the forex market. It is often viewed as an alternative to the U.S. dollar, so rallies in gold can be linked to weakness in the USD. This relationship isn’t always as defined as it sounds but watching gold activity can give traders insight into the psychology of other markets. Traders can also trade gold directly against a currency as in XAU/USD.

About US Dollar

The USD is integral to world trade in that it belongs to the world’s largest economy and acts as the world reserve currency. Because of this unique situation, many of the standard economic rules do not seem to apply to the USD.

The U.S. government has had long periods of fiscal irresponsibility and yet the USD has not always suffered during inflationary times that would damage any other currency. This is because, as the world’s largest economy, the USD is considered a safe haven currency in times of global uncertainty. However, this rule doesn’t always hold, and the U.S. dollar does eventually pay for periods of prolonged inflation and trade deficits – it just seems to enjoy a much longer lag before any market reaction takes place.