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To understand the correlation between USD and Gold prices. first, we have to understand what drives the value of the US dollar
Factors that Impact currency value
1. Falling crude prices
2. Positive reports on job numbers
3. Rise in Real state prices
These are the major factors that determine the strength of dollar value. All the factors mentioned above have a proportional relation with the dollar value’s strength. There are other factors too but we only mentioned the one with the most impact on a currency mainly the USD
Although there is a direct correlation between gold prices and the value of a currency such as the US Dollar, it is not always an inverse relationship as assumed by the general public. Gold as a commodity can act as a substitute for fiat currencies Hedge funds often use gold to tackle inflation.
The real question is why gold prices are falling despite very high volatility in the equity market. As we witnessed when the pandemic hit in the year 2020 we witnessed a rise in the gold price even crossing over 2000 dollars per ounce so why did this time gold mcx fell almost by 8%in last 30 days, dwindling to 1811$.
THIS CHART BELOW DEMONSTRATES HOW AFTER THE RUSSIAN INVASION OF A SOVEREIGN COUNTRY UKRAINE HAS CAUSED A DECLINE IN INTERNATIONAL GOLD PRICE
(image-courtesy of goldprice.org)
It is evident in the chart that after Russia’s war on Ukraine coupled with the strengthening of the US dollar, and high inflation rate, The dollar index as of the 13th of may edge higher to 104.47, making gold less attractive
COVID 4TH WAVE?
Global equity markets and commodities like oil and gas were under pressure at the peak of China’s Covid outbreak when daily cases topped around 33 thousand in a week contributing to fear of a bigger slowdown in the world’s second-largest economy. Recently there has been a sharp decline in the infection rate as the 7-day average infection rate has come down to 9000 covid cases. As Shanghai comes closer to the end of the lockdown for a very short period of one week as an experiment to see how it plays out. China has a zero-tolerance policy for covid cases and a history of using draconian laws since the outbreak of covid 19
Conclusion
Russia’s illegal invasion of Ukraine has Inflated oil and gas prices At the moment there seems to be no solutIon to this conflict. It will impact inflation even worse as some European countries specifically Germany is looking for an alternative oil supplier, as Germany should have realised by now that depending on the Russian regime for energy import to the extent of 60% was an extremely bad policy. There are several factors affecting the equity market. There are talks that the fed is considering an additional hike in interest rate. It’s a risky move as The fed has to keep interest rate in balance. Fed has already increased interest rate thrice. The future of the economy is very uncertain as it depends upon domestic and international outcomes
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