Why Does Gold Impact Currency Rates?

01 October 2008 - Which Way To Pay

    



Why Does Gold Impact Currency Rates?

Economies that are highly dependant on exports of gold will see a strong correlation between gold prices and their currency.  For example, South Africa is a large gold producer, and therefore stronger gold prices tend to help the currency.  When South Africa's largest gold mines shut down due to power shortages in January 2008, the currency fell 20% over a six week period.  Australia is also a gold producer and has a similar correlation. 

Gold is also seen as a "safe haven" investment when the value of other assets is uncertain.  For example, gold has strengthened over the last few years as the US dollar has weakened.  Governments and investors may move money from currencies into gold, weakening the currency, and driving gold prices higher.

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