Forex vs gold investment

The current global market is looking decidedly shaky and once formidable currencies such as the dollar are suddenly no looking like the safe haven they were once regarded as.

With no part of the world handling their economy with aplomb, currencies all over the globe are more volatile than ever and difficult to predict.

Whilst this has the distinct advantage of providing real opportunity for profits to forex traders, it also means that the likelihood of sustaining heavy losses are also greatly increased.

However, even when all other safe bets are distinctly fragile, precious metals seem to be holding firm with gold in particular appealing to investors looking to safeguard their money. The yellow metal is also managing to attract a crowd due to the relative choppiness and fragility of the dollar, a currency which previously would have managed to stand far firmer in difficult economic times.

Gold has been steadily rising in value for the last five years and has recently peaked at levels not seen for 26 years. Its value is very closely pegged to the movements of the forex market, making it an ideal switch for investors looking to diversify who would prefer not to have to learn a whole new way of trading.

It is also possible to invest in gold without putting money in the metal itself. Alternative ways of putting money into precious metals is by investing in firms that either utilise or mine them, such as mining and refining companies.

However, whilst gold is viewed by many as a safe investment, it does not offer substantial returns as a general rule and its growth rate can be made void by inflation very easily if held for the longer term.

Whilst pegged to the movements in the currency market, gold holds an inverse relationship to the dollar and tends to strengthen in times of economic crisis when the greenback weakens. Of course this is only a generalised rule and the actual calculations between the movement of the two are far more complex.

Gold is generally held by banks and governments in addition to currencies and is considered a war chest, a trump card to play when the economic position starts to become critical. Even when a currency starts to rapidly depreciate, holding gold acts as a hedge against potential losses,

Very similarly to forex, the price of gold is strongly related to a large number of factors such as political, economic, global and national and its movement cannot be isolated to a single influencing factor.

Gold remains a commodity very much in demand when global economies are taking a downturn but the price can plummet when sentiment improves. This makes it vital to anticipate market movements, just like in forex and act sufficiently quickly to prevent taking a big hit.

In reality, many investors do not stick solely to either forex trading or gold but rather combine the two to create a portfolio which hedges against risk whilst still offering a decent return.