Price relation of Gold with other asset types

Previously, I was mentioning about how ordinary folks like yourself and me can go about investing in UOB’s gold. From a macro-economic perspective, do you know how other assets’ prices react when gold prices rise or falls? It would be quite relevant for those who trade in currencies, commodities or even invest in stocks and bonds.

When price of Gold INCREASE, the below relationships are reflected. The inverse is also true.

Price of Price movementRationale
OilAs crude oil prices rise, inflation also rises. Gold is a good hedge against inflation, thus its value increases with increased demand.
USDDuring times of economic unrest, investors tend to dump the dollar in favor of gold. Unlike other assets, gold maintains its intrinsic value.
EUR/USDSince both gold and euro are considered “anti-dollars”, EUR/USD may go up as well.
AUD/USDAustralia is the third biggest gold producer in the world, sailing out about $5 billion worth a year.
NZD/USDNew Zealand (rank 25) is also a large producer of gold.
USD/CHF25% of Switzerland’s reserves are backed by gold. As gold price goes up, the pair moves down (CHF is bought).
USD/CADCanada is the 5th largest producer of gold in the world.
As gold prices goes up, the pair tends to move down (CAD is bought).
Economy strengthWhen economy weakens, demand for stocks and other financial assets slackens. This drives money toward what are perceived to be more stable investments such as cash and gold.
Bond yieldsFalling yield indicates an expectation of weakened economy. When interest rates fall, investors flock to gold rather than fixed-income investments that yield a fixed return.
Local currencyA weakened economy that offers lower yields on its bonds will attract lesser investments. This makes its local currency less attractive than that of another economy offering higher returns on its bonds.

Has this broaden your understanding about gold price relations with others?


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