CHAPTER 6
Commodity Correlations
Money flows to high interest rates because investors will receive a higher return for their investment of cash. However, money also flows based on how people spend their money.
Demand for commodities, such as gold, oil, and stocks, will change the value of a currency. Why? If you wanted to buy gold, you would do so with the local currency of the producer. Therefore, you would sell your currency to buy the local currency and then trade it for gold.
If your gold was mined in South Africa, then you’d need to buy South African (ZAR) rand first, then trade your ZAR for gold. If a lot of people did this, prices for gold and prices for rand would rise with demand.
This is true for all commodities. If you wanted to buy a stock listed in the German equities market, the DAX, you’d need to buy EUR first. Fairly logical, eh? However, it is important to know what to buy or sell when you see commodities prices rise and fall. FX Bootcamp has researched the correlation between commodities prices and currency values in 2007, called intermarket analysis, and in this chapter I will show you what currencies to trade when oil, gold, and stock markets are moving.
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