FDRM Discusiion

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As you know that we are grown up with an understanding that there exists inverse relationship

between gold and dollar price although there has been instances when they've moved together too.
However, a few economists, finance experts and analysts have started arguing that the new normal
maybe different as: the gold price and US dollar may move in the same direction. 
Please share your take on this. Also support your argument with logic and evidences to convince us.

We have the understanding that gold price and US dollar moves in the similar
direction. As a rule, when the value of dollar rises as compared to other currencies,
then the price of gold generally tends to fall, as the gold becomes expensive for
other currencies. So, as a result gold value rises in other currencies. The
higher price leads to lower demand and eventually demand declines.
The other reason behind it is said to be as most of the commodities are
priced in US dollars, so when the US dollar strengthens, the it takes fewer
dollar to purchase the commodities. In other words,commodity precived
value falls.
Similarly, when the value of US dollar decreases, then the gold tends to appreciate as
it becomes cheaper in other currencies. So, this denotes the negative relationship
between the dollar and gold. It is evident from the history that during the times of
fear or geo-political chaos, the price of historical metal tends to raise a faith in
government falls, as a result US dollar also falls and vice-versa.

However, this case do not prevails all the time. During various periods in the pst
we have seen gold and dollar moving in the same direction as people perceive this
two investment to be comparatively safer to others.

During COVID-19 itself , during uncertainity n the market the price of dollar and
gold moved concurrently in the same direction.
US dollar is used to setlle world’s financing through international debts and bank
transactions. Much of the country’s foreign reserve also consitis of US dollar, as it is
considered to have easy liquidity , easier exchangability and as safest currency. The
uncertainity in the market led investor to sell-off the investment in stocks and bonds
and move towared US dollars as it is always considered to be a secure shelter. As a
result the demands for dollars rose and various capital market investors moved
towards gold as well as it s considered to be a safe heaven throughout the world.

On the other hand, as I meantioned ealier , during the time of fear or any political or
economic crisis, the demand for precious metal rises (gold). So, during the COVID-19
as well people shifted their needs to gold and as a result demand rose, however the
supply was shrinking as various gold mines were shut-down. Also, the shipment of
gold was reduced as medical supplies were prioritized for the shipment that also led
to increase in cost of supply as well as reduced supply. As a result the reduced
supply and a higher demand led its price to rise.

The current pandameic observed to take this positive relation for a longer period.
The people looking for a safe investment will contibue to invest in, so their values
are sure to be appreciated for a por-long period. However, the increment in USD is
steady as compared to price of gold.
Therefore, just the appreciation and depreciation in US currency donot leads to
change in gold price. But, it depends totally on how investors perceive the situation
and demands for consumption, how they want protection against the market
volatility, how they want to hedge against the inflation, how they want to manage
their portfolio, etc.

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