AUD as an alternative to gold

by Admin
Updated: July 17, 2020

Australian dollars AUD as an alternative to gold (currency-commodity correlation)

Trading directly in gold has some disadvantages that can be overcome by trading in a currency that is highly correlated. AUD - the Australian dollar (a.k.a. Aussie dollar, a.k.a. Aussie) - meets this requirement most, if not all, of the time.

The TradingView widget below shows data for the Aussie-US dollar currency pair. If you click on the AUDUSD symbol, it will also take you to the Advanced chart in a new browser tab:

Why AUDUSD?

Australia is one of the world’s largest producers of new gold and the USA is one of largest importers of gold. On the simple basis of supply & demand, if the price of gold goes up, economic favor will shift relatively cleanly from USD to AUD and this seems to be born out by the very strong historical correlation:

Correlation of AUDUSD (blue) with gold

There is a secondary correlation with NZD. As you might expect, New Zealand has a close trading relationship with Australia. Consequently, its currency NZD is highly correlated with AUD and, in turn, with gold.

It is also likely that AUDUSD continues to be the goto alternative to gold simply because of the historical correlation.

Divergence

It’s important, of course, to understand that the logic here only works in one direction, i.e. the Aussie is affected by the price of gold but it may also go up (or down) for other reasons.

Relative weakness of the Australian economy combined with increasing scepticism of the stock market saw the Aussie decline steadily from 2018 and into 2020 while the price of Gold picked up significantly.

Pan[dem]ic

Since mid March 2020, gold has resumed its role as a safe haven in times of uncertainty:

Correlation of AUDUSD with gold

Interest

If you are trading with a normal forex account and go long on AUDUSD you’ll pay interest on the USD and earn on the AUD.

Historically, the Australian interest rates have been higher than the US rates so it’s been possible to make a net profit simply by carrying AUD (vs paying fees when carrying gold).

Whether or not this will be possible in the future depends on the spread in interest rates applied to your account and whether or not this situation will prevail!

Fun fact

“Au” (from Latin: Aurum) is the chemical symbol for gold. So AuD could be gold dollars.

More info

Profile of the Australian Dollar at xe.com.

Aussie news at news.com.au.

AUDUSD ideas at tradingview.com.

AUDUSD swap rate info at forexop.com.

Internal links

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