Triangular Arbitrage in the Forex Market and with Gold/Silver by Steve Netwriter

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Steve Netwriter
Steve Netwriter's picture
Last seen: 15 hours 3 min ago
Joined: 13/11/2008

Isn't gold priced in US$ ?

This is quite a common question, and one I identify with, because when I started looking at gold & silver I also was told that they were priced in US$.
It took me a while to get my head around what I think is the best way to think about this.

Because it's a common question, I've created these.

The first one is a basic 'law' of forex trading. Basically you can't sit there making money just by swapping US$ for GBP, GBP for Yen, and then Yen for US$ round and round in a circle. It would be nice, but alas Smiling

This applies the same law to gold:

I hope that helps you to appreciate that gold & silver are currencies in their own right. So if you live in the UK and think in GBP, then look at the movements of GBP against Gold.
If the US$ goes down, to maintain the arbitrage triangle, the GBP and Gold must move appropriately.

I would like to encourage everyone to use this terminology, as I think the 'normal' one is based on mis-information created by those who would like everyone to think gold & silver are just commodities:

That's why I refer to GoldUS$=1,100. Because you can swap 1oz of gold for US$1,100 or vice-versa.

Gold is not priced in US$. There is an exchange rate between gold and the paper currencies of the world.

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