Important! This is the Correlation of Gold and Crude Oil with Forex
Maybe you’ve heard that the movement of gold prices with USD isusually inversely proportional. When gold prices rise, the USD usually weakens and vice versa. In the world of forex trading , this is believed because when “risk appetite” increases, investors again hunt for dollars and usually by selling their safe-haven assets, in this case gold. Conversely if there is “economic uncertainty”, investors tend to exchange their dollars with gold.
Lately, even though the “inverse comparison relationship” between gold and USD is still ongoing, it seems not too “harmonious” anymore. This is because it turns out that the USD has also been almost considered a safe-haven asset, so that when there are problems in the world economy, investors also run their capital into the USD.
But what about other currencies?
Gold vs. AUDUSD
Currently Australia is the 3rd largest gold producer in the world. For information only, in a year the world gold production usually reaches $ 5 billion and that is a very large amount, brothers and sisters!
Let’s take a look at the following graph:
If we look at the graph above, we can see that the movement of gold prices tends to be in the direction of the AUDUSD movement.
- When the gold price rises, the AUDUSD also rises
- When the gold price DOWN, AUDUSD also participated DOWN
In the language of technical analysis, we can say that gold price movements and AUDUSD have a positive correlation .
Based on data on price movements, coherence between AUDUSD and gold prices is approaching 80%.
Gold vs. USDCHF
What about the Swiss franc? Unlike the AUDUSD, it turns out that USDCHF has a negative correlation with gold price movements.
From the graph above we can see that:
– USDCHF tends to rise when the gold price drops
– USDCHF tends to DOWN when the gold price rises
It turns out that the reason behind this fact is that 25% of money owned by Switzerland is backed up by gold reserves.
Crude Oil vs. USDCAD
Now we will try to peek at other types of “gold”, commonly called “black gold” or crude oil . This commodity is now one of the important commodities for the world, even (maybe) more important than gold.
We can say that our world is now “oil addicted”. You can still live without gold, but try to imagine if there is currently no oil at all. That means there will be no gasoline, diesel, gas (LPG), maybe even electricity. This means that you will have difficulty going to the office, cooking, and reading this article on the internet. Until now, oil is still a prima donna of world energy.
One of the world’s largest oil producers is Canada. The country exports at least two million barrels of oil per day the United States (US). This makes Canada the largest oil supplier to the US, which makes Canada an “oil dealer” for the US.
Now, because of the large amount of Canadian oil exports to the US, a huge demand will also be created for the Canadian dollar (CAD).
You need to note that the Canadian economy depends on exports.About 85% of its exports are sent to the US. Because of this, USDCAD is strongly influenced by how US consumers react to changes in crude oil prices.
If demand (goods) in the US increases, that means industrialists must ramp up production to meet this demand. Meaning: more oil, please!
Rising oil demand will increase the price of oil. If oil prices rise, CAD will strengthen too. Well, if CAD strengthens against the USD, what will happen to USDCAD?
Correct. USDCAD will DOWN .
Conversely, if demand in the US decreases, industrialists will reduce their production too. That means, oil demand will also decrease and this will make demand for CAD will also go down. If demand for CAD falls, CAD will weaken.
If CAD weakens against the USD, then you certainly can already know where USDCAD will move.
Yes. USDCAD will rise .
From the description plus the graph presented above, you can see that crude oil and USDCAD have a negative correlation .
– If crude oil prices fall, USDCAD tends to rise
– If the price of crude oil rises, USDCAD tends to fall
What are the benefits for traders?
When you already know the correlation between certain commodities (such as gold and crude oil) with forex , you will certainly be able to think about what strategies you will run.
For example, when you hear or read there is a chance that oil prices will rise, then you can use this information to open short positions at USDCAD.
Or, you read the news that the price of gold will go down, then you can open long positions at USDCHF. Or even you can open short positions at XAUUSD at the same time.
It’s just that you must keep in mind to always limit risks, because there can’t be a strategy that is always right.