Understanding Gold Price in Currencies

You will leave this webpage with an answer to your inquiry or interest in "Gold Price in Currencies." I've got an answer and a great link for you as well at the bottom, where you can look up the price of gold in many currencies.

The following explains why the dollar index:gold relationship is not always dollar index down and gold up or dollar index up and gold down. What determines the gold price in currencies around the world?

Allow me to explain using some examples. When gold is bought by Europeans who sell Euros, the dollar index does not have to rally, while gold goes up in price as it becomes more scarce. The Euros used to buy the gold are either kept in Euros by the gold seller or exchanged for other currencies, but the Euros used to buy the gold do not go away effectively unless they are considered of value and are held by the gold seller.

But why would someone love holding Euros at a time when most wanted to flee the currency? They don’t. So the gold seller immediately exchanges Euros into either U.S. dollars or some other currency. Only when net U.S. dollars are being purchased vs. other currencies in the dollar index, does the dollar goes up due to a gold purchase by a European. This means that the US dollar index does not appreciate vs. the Euro due to European gold purchases unless dollars are purchased with the proceeds by the gold seller, but gold goes up in dollar terms because there is less of it available for sale.

The person who just bought gold is not going to turn around and sell it at the same price due to transaction costs alone and the fact that they are convinced gold is the thing to own longer term. So that gold is now being “held,” and the liquid supply of gold has declined, while the Euro supply has increased, because the gold seller is not stupid and won’t hold the Euro either.

Here are some examples of what can happen to gold price in currencies around the globe:

1. Gold Price in Currencies Example #1: Euros BUY Gold AND Gold seller converts Euros immediately to US dollars.

  • Dollar goes up vs. Euro because seller is now holding dollars and the Euros are being passed like hot potatoes into circulation because no one wants them.
  • Euro goes down (circulating Euros go up)
  • Dollar goes UP (circulating dollars go down because dollars are favored)
  • Gold goes UP (circulating gold goes down because gold is favored)
The fact that gold goes up in U.S. dollar terms while the dollar index is going up simply means that gold is going up faster than the dollar. The net result is that gold is being favored over the dollar, but the dollar is being favored over the Euro as well, so gold goes up in U.S. dollar terms and the dollar index goes up as the Euro declines relative to the U.S. dollar.

2. Gold Price in Currencies Example #2: Euros BUY Gold AND Gold seller holds onto Euros.

  • Euro unchanged (if circulating Euros remain the same)
  • Dollar unchanged vs. the Euro (dollar:Euro ratio is unchanged)
  • Gold unchanged unless the gold available in the marketplace decreases dramatically because sellers outnumber buyers. If the transaction reflected a trend of believing that gold was better than Euros, then #1 above would be happening and the Euro would decline. If gold is unchanged, it means that interest in holding gold vs. U.S. dollars is in balance at the current price and remains unaffected by the Euro gold exchange.

3. Gold Price in Currencies Example #3: Euros printed AND are used to Buy Gold. Gold seller sells Euros and buys dollars.

  • Euro goes down
  • Dollar goes up due to the imbalance of Euros and dollars in circulation which is reflected by the relative demand for dollars
  • Gold goes up in U.S. dollar terms (less gold in circulation with the same number of dollars). This is another example of gold being favored over U.S. dollars with U.S. dollars being favored over Euros, so the U.S. dollar index goes up and gold goes up in U.S. dollar terms.

4. Gold Price in Currencies Example #4: Dollars printed AND are used to Buy Gold. Gold seller sells dollars and buys the Euro.

  • Euro goes up due to the imbalance of Euros and dollars in circulation which reflects the relative demand for Euros
  • Dollar goes down
  • Gold goes up in U.S. dollar terms (less gold in circulation with more U.S. dollars in circulation)

5. Gold Price in Currencies Example #5: Euros BUY Gold AND Gold seller buys yen instead of dollars and holds the yen.

  • Euro goes down as more Euros are circulated
  • Dollar goes down vs. yen so dollar index goes down (yen in circulation decrease; dollars in circulation are unchanged)
  • Gold goes up (less gold in circulation)

Now let's look at the recent history of the gold price in currencies from around the world:

During mid-May to early June, while gold was rising in dollar terms, this is what was happening: Euros are being converted into gold and the Forex market was neutral on US dollars, so the dollar index went sideways for a while, whereas gold was up vs. the US dollar and up dramatically vs. the Euro. So gold was rising slowly against the dollar index and rapidly against the Euro.

AN UPDATE:

In July 2010 things were different. Suddenly Europeans wanted Euros over US dollars and no longer felt compelled to run to gold. So BOTH gold and the US dollar index have been going down. Other currencies like the yen have done the same thing vs. gold and the US dollar. So in July 2010 we were back to the gold down & dollar down scenario.

Are things about to change for the US dollar AND gold? Are they going to continue to track together with a positive correlation as they have except for brief periods since mid-February of 2010 or will they go in opposite directions once again? That remains to be seen, but as detailed in my recent market comments, the US dollar AND gold have found a place where they both may either find support OR fail. They have been moving TOGETHER in a positive correlation. The tone at the moment is slightly tipped toward at least a brief rally as of 7-28-2010. The details can be read on my Market Comment page and on StockTwits. Realize the trading set-up changes rapidly and this is given as an example, not a current trading plan.

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A bit more explanation about the dollar index follows:

Remember the composition of the dollar index includes the following currencies shown with their approximate contribution to the index currently: Euros (58%), Yen (14%),Pound (12%), Canadian Dollar (9.1%), Swedish Krona (4.2%), and Swiss Franc (3.6%). This relationship shows you that if the Euro crashes, it will likely send the dollar index up dramatically, but if it's only down slightly and the Yen is up significantly more vs. the U.S. dollar than the Euro is down against it, the dollar index may be unchanged for the day.

So now you know why you need to know the gold price in currencies other than the US dollar, which leads me to the great link below.

This may be a link some visitors were looking for. It can give you important insights into gold price fluctuations to know what gold is doing in more than the U.S. dollar as just explained. In the box on the upper right of the webpage this link will take you to, you can find gold pricing in the four major currencies. Other data is also available on this website run by the World Gold Council.

Gold Price in Currencies from Around the Globe

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I hope you will leave our site with a better understanding of gold pricing in currencies. And have a look around the site if you like.