Many people don’t realize that gold trades on the Forex market, just like any other currency. Although most banks refer to gold as a commodity, they trade it at their currency desks, not on their commodity desks. Gold, as a globally recognized currency, has the code XAU, distinct from the gold miner’s equity index, which shares the same acronym. Most central banks include gold reserves as part of their foreign currency holdings. Thus, despite claims to the contrary, gold functions as money.
Gold in the Forex Market
The foreign exchange market (Forex or FX) facilitates global currency trades, operating 24 hours a day. The bulk of trading occurs in London and New York, with significant activity in Tokyo, Singapore, and Hong Kong.
Volume of Gold Trading
In September 2013, the Bank for International Settlements (BIS) published a study titled “Triennial Central Bank Survey 2013.” The report revealed that the average daily trading volume in the FX market was $5.3 trillion. This figure includes spot transactions, forwards, swaps, and options.
Comparing Gold Markets
Gold trades $249 billion daily in currency markets, ranking as the 5th most actively traded currency worldwide. By comparison:
- Physical gold trading: 16 tonnes or $650 million daily
- GLD (ETF): 50 tonnes or $2 billion daily
- Comex: 500 tonnes or $20 billion daily
- Forex market: Over 6,000 tonnes or $249 billion daily
These numbers make it clear that the price of gold is not primarily driven by the small physical market. Instead, it reflects a highly synthetic currency trade.
