Gold Is a Currency
Under a free market system, gold is a currency, although it is not often thought of as one. Gold has a price and that price will fluctuate relative to other forms of exchange, such as the U.S. dollar, the euro or the Japanese yen. Gold can be bought and stored, and while it is not often used as a direct payment method for everyday use, it is highlyand can be converted to cash in almost any currency with relative ease.
Gold, therefore, has tendencies like those of a currency. There are times when gold is likely to move higher and times when otheror asset classes are likely to outperform. Gold is likely to perform well when confidence in paper currencies is waning, when there is potential for war and/or when there is a lack of confidence in Wall Street-type trading instruments.
Gold can now be traded in multiple ways, including buying physical gold, a gold or investors can participate in just the price movements without owning the underlying asset by purchasing a (CFD). (To learn more, see The Gold )
Gold and the U.S. Dollar
Gold and the USD have always had an interesting relationship. Over the long term, a declining dollar has meant rising gold prices. In the short term, this is not always true, and the relationship can be tenuous at best, as the following two-year weekly chart demonstrates. Notice the correlation indicator in Figure 1, which moves from a strong negative correlation to a strong positive correlation and back again.
Gold and the USD have always had an interesting relationship. Over the long term, a declining dollar has meant rising gold prices. In the short term, this is not always true, and the relationship can be tenuous at best, as the following two-year weekly chart demonstrates. Notice the correlation indicator in Figure 1, which moves from a strong negative correlation to a strong positive correlation and back again.
