By: Dr. Mike Campbell
Forex, as we currently understand it, has a relatively short history. It came into being after the “Nixon shock”, in 1971, when the US President announced that America was no longer prepared to redeem Dollars for gold. The value of gold that underpinned the Gold Standard (which was used as the backbone of international trade) had fallen below the London spot gold price meaning that speculators could swap Dollars for gold and then make a profit by selling it on the metals market. By 1976, countries were obliged to float their own currencies and forex trading was born.
The advantage of gold was that it was a commodity valued in all countries and so readily traded. Gold has retained its appeal and is often used as a “safe haven” in times of economic or political turmoil. On the back of the global financial recession, it has risen to record high values because of increased demand and the declining value of the Dollar. Gold currently represents a speculative investment opportunity and also a hedge against Dollar weakness.
Mexico has bought 90 tonnes of gold (worth about $4.9 billion) over the past quarter as its central bank seeks to diversify its reserves out of US Dollars and other currencies. Other nations including China, Russia, India and Thailand have also increased the proportion of their central bank reserves which are held in gold recently. The value of gold has risen by 11% so far this year. The purchase puts Mexico in 33rd place in the ranking of nation’s gold holdings. The USA leads the list with a reserve of 8133 tonnes.