Price of gold is affected by stronger US dollar

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In recent days investment gold trading has seen a slight decline in prices on the commodity market and, with it, a stronger stagnation in gold prices. According to analysts along with commodity market financial strategists, this was caused by the inversion rule in relation to the exchange rate of the US dollar (USD) as the main global commodity currency. According to this rule, usually if the exchange rate of the USD strengthens, the price of gold decreases, as the interest of investors from the non-dollar zone is significantly weaker.

On 7 December 2021, at 7:12 am CET, investment gold traded on the Commodities Exchange Center (COMEX) commodity market at US$ 1,782.20 per troy ounce, with a daily gain of +0.15%. However, according to technical analysis, as reported by economic correspondents on the US commercial television, CNBC, since the beginning of 2021, the price of gold still shows a loss of -6.87% and in an annual comparison this current price reflects a loss of -4.84% in the last 52 weeks. The current price of gold was achieved in a situation where the USD – according to the US Dollar Currency Index (DXY) – showed a slight loss of value by -0.13% and we saw USD at a price level of 96.20. According to analysts, this current state of both gold price and exchange rate, has once again confirmed the inverse rule and its functionality within the global commodity market.

In this regard, it is quite clear that the stronger USD, its strengthening exchange value increases the cost of acquiring this investment instrument, i.e. gold, for buyers holding other currencies, while higher yields increase the opportunity cost. In this respect, investors’ interest in gold and the other major investment instruments such as stocks and bonds are also decreasing. According to analysts, the recent decline in gold affected not only the USD exchange rate but also a rise in US bond yields. Along with gold, the inverse rule has an effect on oil price developments. In recent weeks, however, oil price developments have been strongly influenced by demand regarding the development of the SARS-CoV-2 viral pandemic. On 7 December 2021, similar to gold, the price of oil, both WTI and Brent, recorded a change in the trade trend into the bull market. Financial markets, which have struggled this year to decipher central bankers’ political signals, are facing the biggest challenge to date, with major meetings between the Federal Reserve, the ECB and the Bank of England.

A very strong factor for investors to trade gold, but especially its long-term holding in their investment portfolio is the fact that gold has been considered for many centuries as an investment tool to maintain a lasting financial value. However, according to some commodity financial market strategists, this importance has been strongly questioned in the last few years due to the development of the financial market and the development of the digital currency market and especially the Bitcoin virtual currency. However, according to most analysts, gold is still a strategic inflation hedge, especially for conservative investors. In this context, Bank of England Deputy Governor Ben Broadbent said on Monday 5 December 2021 that inflation in Britain could “comfortably” exceed 5% in April and that the country’s tense labor market threatens to become a more permanent source of inflation. Limited incentives and rising interest rates tend to push government bond yields up, which increases the opportunity cost of interest-free gold. However, eurozone finance ministers were optimistic at their meeting in Brussels on Monday, 6 December, on the outlook for economic growth despite the omicron coronavirus and mutually agreed to continue a mildly supportive fiscal policy next year.

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