Forex Gold Exchange

The Foreign Exchange Market, better known as FOREX, is a worldwide market for buying and selling currencies. It handles a huge volume of transactions 24 hours a day, 5 days a week. Daily exchanges are worth approximately $1.5 trillion (US dollars). In comparison, the United States Treasury Bond market averages $300 billion a day, and American stock markets exchange about $100 billion a day.

The Foreign Exchange Market was established in 1971 when fixed currency exchanges were abolished. Currencies became valued at ‘floating’ rates determined by supply and demand. The FOREX grew steadily throughout the 1970′s, but with the technological advances of the 80′s FOREX expanded from trading levels of $70 billion a day to the current level of $1.5 trillion.

The gold market is one of the oldest commodities to be traded in the Forex market, it is in fact one of the oldest examples of foreign trade in history. People have used gold as an investment for centuries, due to its high value and the fact that it is an independent resource that is not connected to any country or government, unlike currency. It can be bought and sold on the open market in many forms, as bars, coins and even jewelry depending on the market, it is usually a very safe investment.

Any way you look at it, trading gold makes sense. Long term gold is a great play. The US government is borrowing trillions of dollars to finance its debt, while increasing money supply immensely leading to inflationary concerns, when inflation goes up, gold skyrockets. Also demand for gold is projected to increase from developing countries like china, Brazil, and India leading experts to believe that the only way gold is going in up.

Gold in the Forex Market

In Forex, the symbol for gold is XAU. The price of gold is measured by its weight, and it refers to the value of an ounce in dollars. Transactions with the prices of gold are done the same way as with currencies, by two way or OTC (Over the Counter). This means, managed between two parties without the need of a third party to consolidate the trade. These types of transactions are negotiated in a virtual manner, since they do not require the physical exchange of the commercialized merchandise, considering gold as “XAU,” as if it were just another currency. These operations are only done in regard to the United States Dollar (USD).

Reasons to invest in gold

1. Gold is not affected by inflation nor devaluation. Nonetheless, it does not lose its daily value like it happens with paper money.
2. Gold is considered as a wealth reserve. Gold has demonstrated to improve its value in times of crisis or war, when alternative investments tend to fall.
3. Gold is NOT under political control. No government can influence on its price.
4. Currently, gold reserves are limited. This influences positively on its price, since it must rise when it is a limited resource.
5. It is an easy investment. It is a currency accepted globally and it does not present many difficulties to exchange, nor exaggerated taxes.

Gold is no longer used in any nation, but some private institutions are still using it. We will never be able to go back to using the gold standard because it would cause a decrease in the money supply and the economy would collapse. There also is not enough gold to back all of the dollars out there given the size of our economy.