Gold,oil and forex markets are intimately connected. As a forex trader, keeping an eye on the gold and oil markets can help you forecast price changes. Gold and oil prices are considered to be leading indicators in forex trading. The three markets, gold, oil and forex tend to move based on the same fundamentals.

There are four currencies that are intimately correlated with gold and oil prices. These currencies are the Australian Dollar (AUD), the Swiss Franc (CHF), Canadian Dollar (CAD) and the New Zealand Dollar (NZD). These four currencies are popularly known as Commodity Currencies. The correlation between gold and AUD, CHF and NZD is strong. However, the correlation between CAD and oil prices is not that strong but can still serve as a leading indicator.

Gold and US Dollar (USD) are negatively correlated. When USD depreciates or becomes weak, gold prices tend to go up. Especially in times of political and financial crisis, investors tend to flee the USD and take refuge in gold. Gold is still considered as the ultimate safe haven by investors. This has something to do with the perceptions for gold that have been fashioned over thousands of years of human history. So the currency pairs USDCHF, AUDUSD and NZDUSD tend to mirror the movements in the gold market. One of the popular currency pairs that is traded by forex traders is the pair USDCHF. So if you are trading this currency pair, you should always keep an eye on the gold market.

CAD is the only currency pair in the commodity currencies that is somewhat correlated with oil prices. Oil drives the global economy. Rising oil prices produce inflation and slows down the global economy. Now, Canada is one of the biggest exporter of oil to US. Canadian economy is heavily dependent on heating oil as the winters are long and people use heating oil extensively during the winters.

We are living in a different world. Globalization has changed the basic structure of the global financial system. If Tokyo Stock Market falls, it ripples through the rest of the global system. Likewise what happens in the commodity market also ripples through other markets. Stocks, forex, futures & commodities, all these markets are now highly interlinked and professional traders have to keep an eye on what is happening in the different markets so as not be caught unaware. Righ now, gold prices are at their historical highs. Australia has large gold mines and is a leading exporter of gold. When gold prices rise, AUD tends to appreciate. On the other hand, USD dpreciates with rise in gold prices as both have a strong negative correlation. This produces a double effect on the currency pair AUDUSD as one currency is going up and the other is going down at the same time. What this means is the with the rise in gold prices the currency pair AUDUSD will also rise. This is the best time to trade AUDUSD!

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