Some Cardinal Principles to begin with:
1. Price of any thing depends on its scarcity, more than its inherent value (Think of Diamond-Water Paradox).
2. Gold, Oil and other precious metals / commodities in the Global market are traded predominantly (sometimes entirely) in US Dollars.
So when Dollar gets weaker (vis-a-vis other currency such as the Indian Rupee). Gold becomes more affordable for people in India in terms of buying power of the Rupee. People rush to buy Gold and this raises its Price in terms of the currency of Sale i.e. the Dollar. So the Dollar price of Gold increases when the Dollar is actually falling in terms of other currencies.
Now apply this explanation for India, where at the moment, Gold prices are falling as the Rupee is also growing weaker in relation to the Dollar. The explanation above seems to explain the Gold Price Phenomenon Perfectly.
However, Dr Brian Lucey, at Trinity College Dublin & Mr. Fergal O’Connor take exception to the Causal explanation above and rightly (in my opinion) point out that it is purely a Correlation effect that Gold and Dollar move in opposite directions. The right way of thinking about this is to treat Gold as another currency which is used by the US' trading partner nations. When the Dollar's trade weighted value falls, Gold improves in value.
I redirect you to the original article. Gold - Dollar Negative relation
1. Price of any thing depends on its scarcity, more than its inherent value (Think of Diamond-Water Paradox).
2. Gold, Oil and other precious metals / commodities in the Global market are traded predominantly (sometimes entirely) in US Dollars.
So when Dollar gets weaker (vis-a-vis other currency such as the Indian Rupee). Gold becomes more affordable for people in India in terms of buying power of the Rupee. People rush to buy Gold and this raises its Price in terms of the currency of Sale i.e. the Dollar. So the Dollar price of Gold increases when the Dollar is actually falling in terms of other currencies.
Now apply this explanation for India, where at the moment, Gold prices are falling as the Rupee is also growing weaker in relation to the Dollar. The explanation above seems to explain the Gold Price Phenomenon Perfectly.
However, Dr Brian Lucey, at Trinity College Dublin & Mr. Fergal O’Connor take exception to the Causal explanation above and rightly (in my opinion) point out that it is purely a Correlation effect that Gold and Dollar move in opposite directions. The right way of thinking about this is to treat Gold as another currency which is used by the US' trading partner nations. When the Dollar's trade weighted value falls, Gold improves in value.
I redirect you to the original article. Gold - Dollar Negative relation
