Since the conflict between Russia and Ukraine until the Russians attacked and sent troops into Ukraine. As a result, investors sell risky assets such as stocks and invest in safer assets (Safe Heaven), and gold becomes an asset that is considered safe in times of war.
However, when investors invest in gold gold price rose while the US dollar depreciated Therefore, the question arises as to what factors the relationship between gold and the dollar comes from.
Back in the days before World War I, the most popular medium of exchange was gold, then it evolved into paper, which was money. The central bank therefore discussed a more stable financial system and more comfortable trading. Until a system called Gold Standard, which is considered the beginning of gold involved in the dollar.
During World War II, countries with their own currencies experienced fluctuating exchange rates. Because different people set money values for trade benefits, such as setting a weak currency for the benefit of exports. Some countries rely on gold to support their own custom ratios. make trade International investment is paranoid. In addition, many countries have closed trade policies. Barriers to trade and investment in various forms, such as the establishment of high taxation barriers export subsidies causing conflicts around the world between each other and being part of the slate that led to the world war
After World War II, Franklin D. Roose West, President of the United States with Winston Sircyll, Prime Minister of the United Kingdom initiated international consultations to negotiate ways to organize international finance and find ways to avoid economic conflicts
Consequently, the signing of Bretton Woods Agreements consisted of members agreeing to abolish customs or gold backing. Then turn to tie the exchange rate of its own currency to the dollar. by making the dollar the only currency backed by gold Two new international financial organizations, the International Monetary Fund (IMF) and the Bank for Construction and Development (IBRD), were established as a mechanism to deal with the issue.
The key condition is that all nations are obliged to trade their money with gold or USD and are required to exchange their own dollars for gold at $35 per ounce. see that the United States is involved in the world Make the dollar a medium of international trade.
Even though the Bretton Woods system has collapsed But also causing the central banks of various countries around the world to still use gold as their international reserves until now, and during the Covid-19 many countries buy more gold, so gold is essential to the stability of the country. Therefore, there is a correlation between the price of gold and the dollar. This can affect the price of gold when the value of the dollar increases or decreases.
Gold has been associated with the dollar for a long time. And the change in the dollar currency affects the price of gold. With the dollar depreciating against the world’s major currencies such as the euro and the yen, gold prices will rise. Because the price of gold is traded in dollars, so when the dollar weakens Gold is cheaper compared to other currencies that investors hold. thus, creating buying pressure and causing the gold price to rise.
However, although the relationship between dollar value and gold is closely related, but there are other factors that affect the price of gold.
1. Monetary Policy and Interest Rates
with the opposite direction correlation with the gold price. If the policy interest rate goes up shows that the economy is starting to recover people’s confidence increases the dollar will rise as a result, the price of gold fell. On the other hand, the policy interest rate was lowered. shows that the economy is slowing the dollar will decline Gold price will increase
2. Demand and supply of gold.
The demand for gold mainly comes from 3 main groups, namely the jewelry sector. Manufacturing and medical sectors Investment sectors, including governments of various countries, have used more reserves to buy gold. If there is a need for more gold causing the gold price to rise
3. Oil price level
will have a positive correlation with world gold prices This is because oil can drive inflation in the form of Cost Push Inflation, so if the price of oil rises, the price of gold will rise accordingly. In addition, oil and gold are in the same Commodity Basket. When foreign investors trade oil, they also trade gold.
4. Global Crisis
There will be a positive correlation with the world gold price if there are crises such as the subprime crisis. global political conflict or war Gold prices will rise because gold is considered Safe Heaven, which gives holders more confidence than holding troubled currencies or other troubled assets.
5 .Inflation
There is a relationship with the price of gold in the same direction. Since the end of 2021, the US inflation rate has increased. The price of gold has also increased. This is due to the increasing inflow of investments to buy gold to prevent a decrease in the value of money from higher inflation.
The relationship between gold and the dollar It has existed since the First World War and from the ever changing and evolving world financial system. It’s not just the dollar that has a correlation with the gold price. There are other factors, so if investors understand the changes in such factors. can be applied to gold investment strategies to seize long-term investment opportunities
