"Trade balances have little or no connection to exchange rate movements. Given that we live in a world dominated by rapidly moving capital flows, the idea that trade flows matter a jot is incredible. The critical factor governing capital flows is the integrity of the standard of value, i.e. the exchange rate. Exchange rates are commonly expressed as exchange ratios between two currencies: we prefer to first consider the exchange ratio between paper money and something real, and for this real commodity we choose gold for its convenience, not its mystic powers! The nominal gold price can be largely determined by Central Banks because they are monopoly suppliers of their paper units: all monopoly suppliers control price."