Gold as a Currency...!

Gold: The Other Currency

by Cory Mitchell 

Throughout the ages, gold has captivated societies, and in a post-gold-standard world, many feel that with the instability that occurred in the first decade of the 21st century, some form of the gold standard should be brought back. There were inherent problems with the gold standards implemented in the 19th and 20th centuries, and many people are failing to realize that gold, under the current free market system, is a currency. Gold has often been thought of in relation to the U.S. dollar, mainly because it is usually priced in U.S. dollars, and there is a rough inverse correlation between the USD and gold prices. These factors must be considered when we see that the price of gold is simply an exchange rate: In the same way one could exchange U.S. dollars for Japanese yen, a paper currency can also be exchanged for gold. .) 

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.