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Why Gold Affects AUD USD And Usd CHF

Tue Feb 16 2021 07:55
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Gold is among the most preferred safe havens in the world due to its high value and eases of trade. Regardless of anything, this precious metal is always high on values. Whenever an economic crisis hits the nation or worldwide, gold comes into high demand. 

As gold is very finite as compared to other commodities, its value will remain high no matter what. This yellow precious metal has both positive and negative correlation with currency pairs. 

There are several currencies that go up when gold's value surges in the market. And on the other side, several currencies get a hit when gold goes down.  

In this article, we will explore the gold's effect on AUD/USD and USD/CHF. We will know the correlation between these currencies and why they get a hit with gold's value change.  

Gold Vs US dollar 

Let's first talk about the world's popular currency US dollar and its relation with gold. The value of gold dips in the market when the US dollar goes up and vice versa. It happens because, during a crisis, people believe to spend on intrinsic things like gold. 

As gold is available at ease, and it has no loss when someone sells it in the market, it becomes a safe haven. If we look at the list of safe-haven assets, gold comes first on the list. 

This negative correlation happens because of the price imbalance in the US. When the dollar rises, the value of gold goes down in the US but it's still on a higher side in other countries. So, when the gold prices are higher in other countries, people will need more dollars. This is the core reason behind why gold value falls when the dollar goes up and vice versa.  

AUD/USD 

The Australian dollar and American dollar are among the most popular pairs. In the world of forex, this pair always remains on-demand when it comes to trading. 

By this pair, we can understand how many US dollars a trader will need to buy one Australian dollar. As Australia has a core economic foundation of import/export, its prices also change due to it. Whenever there is unrest in the import/export business, the Australian dollar will get a hit. As the economic condition of both nations is strong, the correlation is strong.

USD has several factors that can affect its price in the international market. Fed also plays a major role in affecting the prices of the US dollar in the country and forex market. And on the other side, the Australian dollar is more inclined towards commodities. 

AUD/USD and Gold 

Now, we know that the US dollar and gold and negative relation, and they don't go well with each other. The negative industry correlation between gold and the dollar is still the same in the market. But, their dynamics have changed a bit and we can see the impact in the market. 

As the US dollar has also some properties of being a safe haven, investors are not that worried about it. Whenever a crisis hits the US or other countries, many investors are willing to keep the US dollar. But, on a broader picture, Dollar and gold still have a negative relation. 

Australia is number three in the world for producing gold and supplying in the markets. With a market value of USD 5 billion per year, Australia is strong in gold production. So, due to this reason, gold and AUD have a positive relation.

They move together 

In simple terms, as Australia is a heavy producer of gold in the world, the value of the dollar goes along with it. So, when AUD/USD will go up, gold will also go in the same direction. And, on the other side, when gold goes down, the AUD USD will also get a hit and it will go down.  

Gold Vs Swiss Franc 

Swiss Franc also has a strong relation with gold like the Australian dollar. But, the reason CHF being friendly with gold is different from the AUD. Australia is among the biggest producers of gold but Switzerland is not. But, as more than 25% of the Swiss Franc has backed by gold, so there is a positive correlation. 

Whenever gold goes up, the swiss currency also rallies because of their reserve. CHF is also among the popular currencies for traders due to its strong value.  

USD/CHF 

This currency pair also has various factors that can affect their performance. Both countries' GDP, finance data, employment data, and more can affect their growth in FX. This pair tells us how many CHF a trader or an individual will need to buy a single US dollar. 

The difference between the interest rate of FED and SNB also affect the performance. So, whenever any of the banks will increase the interest rate, investors take an interest. 

Both the American dollar and Switzerland Franc are safe-haven currencies & they perform well. Whenever a crisis hits the market, people have two good fiat options for their investment. If any investor is looking to hold capital in fiat currencies other than a commodity. Then, these two currencies are the best options to go for.  

Gold and USD CHF 

If we have an overview of this currency, it has a negative correlation with gold. Whenever the gold goes up, the USD/CHF pair will experience a dip and vice versa. Their negative correlation is very interesting as compared to the USD/AUD one. 

This negative correlation is more due to the dollar present in the pair. As Switzerland is not more in the business of producing gold, it has a negative correlation with gold.  

Safe haven options 

If you wonder which is the best option to shift your capital in a time of crisis, we have got you covered. Gold, USD, and CHF fall in the category of safe-haven investment because of several reasons. 

Gold is a finite market entity and it has a natural intrinsic value that's why it's a safe haven. Coming to the American dollar, its value is more robust as compared to the other currencies. That's the reason why the US dollar's value is higher and it's a safe haven

On the other side, CHF is stronger because of the country's large gold reserve. As 25% of the currency has the support of gold, that's why it falls under the category of safe haven. During the COVID-19 crisis, the top preference of people was a gold investment. And after the gold, these two along with some other currencies was the other preferences.  

Summary: 

The USD/AUD pair has a positive relationship with the precious yellow metal— both will go up or down together. On the other side, USD/CHF has a negative relationship with gold— one will go up and the other one will go down. 

Both the currency pairs have their own reason for the kind of relationship they have with gold. If you want to trade any of the commodities, you need to first check which one will bring you more benefits. You can decide this based on your investment portfolio and RoI you want to generate in the forex market.  
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