{"id":11853,"date":"2020-10-09T09:30:57","date_gmt":"2020-10-09T09:30:57","guid":{"rendered":"\/blog\/?p=11853"},"modified":"2020-10-09T09:33:00","modified_gmt":"2020-10-09T09:33:00","slug":"understanding-the-relationship-between-usd-and-gold","status":"publish","type":"post","link":"https:\/\/tata-blog.osian.dev\/blog\/wealth-services\/understanding-the-relationship-between-usd-and-gold\/","title":{"rendered":"Understanding the relationship between USD and Gold"},"content":{"rendered":"\n

Since its\ndiscovery in the Stone Age, gold is still an asset in modern society. Even\nthough it has stopped circulating as a primary means of currency, gold\ncontinues to strongly influence the values of various currencies trading on\nforeign exchanges. <\/p>\n\n\n\n

Until as late as the 70s, governments, including\nthe USA, used to back their fiat money with gold bullions. With the Gold\nStandard, countries agreed to back their paper money with fixed units of gold.\nA country with a gold standard conducted transactions with gold with a fixed\ncost per unit. That fixed price is what set the value of currency.<\/p>\n\n\n\n

All countries in the world hold gold as a foreign\nexchange reserve but it’s not really used to back paper money anymore. In foreign\nmarkets, gold is priced in US Dollars. The USD is the benchmark pricing\nmechanism for gold, which is why the relationship between gold and USD is so\ninteresting.<\/p>\n\n\n\n

Gold and USD\nshare inverse relation. When USD weakens against other currencies, value of\ncurrencies of other countries increase and this increases demand for\ncommodities like gold. Increase in demand for gold causes increase in price of\ngold. <\/p>\n\n\n\n

Gold\u2019s\nintrinsic value and limited\nsupply guarantees that it retains value better than paper money and leads to an\nincreased demand. Gold is considered as \u2018safe haven\u2019 and hence during uncertain\nmarket conditions or economic crisis, investors prefer gold as an asset class and\nhence prices of gold go up. While it is popularly understood that the prices of gold and the value\nof USD are inversely related, it is not always true. There have been instances where the USD and gold have grown together. <\/p>\n\n\n\n

Additional Read:<\/strong> Why Gold is a Safe Investment\nTool in an Economic Crisis<\/a><\/p>\n\n\n\n

An increase in\ndemand for gold strengthens the currency of the country that exports it. As\nlong as a country is a net exporter, that is, it exports more than it imports-\nthe value of its currency will continue to increase. Conversely, when a country\nspends more money on imports than it gains from exports, its currency value\nwill decline.<\/p>\n\n\n\n

When central\nbanks purchase gold, they print currency to purchase gold, causing\nexcess currency in circulation, which may lead to inflation and weakening of currency in their own country. <\/p>\n\n\n\n

In India, the\nconsumer demand for gold is tied to the culture around it. For Indians, gold\nsymbolises wealth and financial protection, amongst other things. The demand\nrises during festive events and the purchasing power for it is otherwise\nconsistent and growing. About 60% of gold in India is purchased and circulated in\nrural India. <\/p>\n\n\n\n

\"Gold<\/figure>\n\n\n\n

Young\ninvestors also are attracted to investment schemes with gold as an underlying\nasset. While equity investments continue to be volatile because of their market\ndependence,  gold as a commodity provides\na relatively stable growth rate despite it\u2019s fluctuating price in the\nshort-term. It is important to understand the relationship between gold and\ncurrencies while investing in such instruments. <\/p>\n\n\n\n

Additional Read:<\/strong> Why is everyone buying Gold?<\/a> <\/p>\n\n\n\n

Tata Capital Wealth Management<\/a> recognises the value of intelligent investments that generate wealth over time. With the wealth management plan, you can access bespoke solutions for investing and protecting this wealth against volatility. This includes a variety of promising instruments and gold-related investments, like gold mutual funds as well as gold exchange-traded funds. <\/p>\n","protected":false},"excerpt":{"rendered":"

Since its discovery in the Stone Age, gold is still an asset in modern society. <\/p>\n

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