Gold News

Dollar-Gold Price Link "Proves Role as Currency"

The OFT-CITED relationship between the Gold Price and the US Dollar's foreign-exchange value points to the metal's role as an "internationally traded currency" according to new research published today.

"Many academic studies as well as market and media reports refer to the negative relationship between gold and the US Dollar," write Fergal O'Connor, bursar of the London Bullion Market Association, and Dr Brian Lucey, associate professor in finance at Trinity College Dublin, in the new Alchemist magazine, produced for members of the LBMA, the professional bullion market's trade association.

The standard interpretation says that the Gold Price moves inversely to the Dollar, rising when it falls and vice versa. But this Gold Price relationship is not specific to the US Dollar, their analysis finds. Looking at the Euro and British Pound as well, "The returns on gold in a currency have a negative relationship with the currency's trade-weighted returns over short, medium and long horizons," the LBMA paper concludes.

A chart, included with the analysis, shows the 1-year correlation of the Gold Price in each of the Dollar, Euro and British Pound Sterling with each currency's trade-weighted foreign exchange value, from 1980 to 2012. All three relationships are strongly negative.

"Gold acts like just another currency," write O'Connor and Lucey. "When the Dollar [or Euro or Pound] is losing value against the majority of currencies, it is also losing value against gold.

"The significance of the negative relationship between [the Gold Price ] and the value of the Dollar then seems to be another pointer towards gold's role as an internationally traded currency, rather than [simply] a way of explaining movements in the value of gold expressed in dollars."

Buy Gold at the lowest prices and store it in the safest locations for as little as $4 per month using BullionVault...

See all articles by Gold Bug here.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals