The US dollar has gradually been rising over the last couple of weeks; this may be due to the expected US interest rate increase, which has potentially been pushing the price of the dollar up.
With a rising dollar, the price of gold has lowered slightly. This morning (20th February 2017) during Asian morning trading hours, the spot gold price was quoted at $1,233.75, which was down by $0.85 in comparison to the previous close.
Bang For Your Buck
As gold is traded mainly in US currency, gold and the US dollar are intertwined. At present, the dollar is looking stronger, which means that gold becomes more expensive for other nations to invest in. This could help to explain the current small dip in demand.
Of course, the opposite can often happen when the US dollar is weaker. When the dollar weakens, gold can become less expensive and demand for the precious metal can rise. When the dollar loses value, gold can often be sought as a safe-haven asset, to combat uncertainty and mistrust in the currency.
The relationship can be explained using the well-known phrase, ‘bang for your buck’. Investors are likely to select the option that stretches their money/investment the furthest. With that in mind, it is important that investors keep an eye on the political and economic climate to make an informed choice.
However, as we are about to see, investment decisions are often complicated. Especially when there can be exceptions to the rules.
Exception to Every Rule
As previously mentioned, when the dollar is higher, gold usually operates at a lower price point. However, due to the political uncertainty taking place at present, a slight bend to the rule is being experienced.
Trump’s presidency, the European elections, Brexit and Greek finanical stress, are all causing nervousness towards currency and stocks. But precious metals are still holding up well, especially considering the strength of the US Fed and other markets.
The price and demand for precious metals has not been impacted as much as you may have expected.
Could this all change back, or will we see this pattern continue?
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.