Relationship between the $ and Gold11 Aug 2019 10:04
Gold vs. the U.S. Dollar.....”courtesy of thebalance.com”
Gold is an asset. As such, it has intrinsic value. However, that value can fluctuate over time, sometimes in a volatile fashion. As a rule, when the value of the dollar increases relative to other currencies around the world, the price of gold tends to fall in U.S. dollar terms. It is because gold becomes more expensive in other currencies. As the price of any commodity moves higher, there tend to be fewer buyers, in other words, demand recedes. Conversely, as the value of the U.S. dollar moves lower, gold tends to appreciate as it becomes cheaper in other currencies.
Demand tends to increase at lower prices.
Here's one way of looking at this relationship: There are approximately 325 million people in the United States, while the total world population is around 7.4 billion. Less than 5% of the world lives in a nation where the U.S. dollar is the national currency. The role of gold as a currency is ubiquitous around the world. While the U.S. dollar gold price is a widely accepted benchmark, 95% of the world must translate the value of the metal to their local exchange rates.
All over the world, throughout history and today, gold is money. The ancient philosopher Aristotle wrote that money must be durable, divisible, consistent, and convenient and possess value in itself. Gold meets all of these characteristics. While the relationship between the value of the U.S. dollar and gold is important, the dollar is not the only factor that affects the price of the prized metal. Interest rates also affect the price of gold. Gold does not yield interest in itself; therefore, it must compete with interest-bearing assets for demand.
When interest rates move higher, the price of gold tends to fall, since it costs more to carry the metal. In other words, other assets will command more demand because of their interest rate component.
There is also a psychological factor attached to the value of gold. The price of gold is often sensitive to the overall perceived value of fiat or paper currencies in general terms. During times of fear or geopolitical turmoil, the price of the historic metal tends to rise as faith in governments falls. During times of calm, the price of gold tends to fall. As perhaps the world's oldest and most storied currency, gold is an important barometer in terms of global economic and political well-being.
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