Gold and the U.S. Dollar
Why gold and the U.S. dollar are often discussed together and what currency effects mean for investors.
Gold is commonly quoted globally in U.S. dollars. As a result, currency movements can affect both the international price and the amount a buyer pays in another currency.
Dollar relationship
A stronger U.S. dollar can make dollar-priced gold more expensive for buyers using other currencies, while a weaker dollar can have the opposite effect. This is one reason the two assets sometimes move in opposite directions.
The relationship is not permanent or exact because both assets respond to many other forces.
Local-currency returns
A Canadian, European or other non-U.S. investor experiences both the movement in gold and the movement in the exchange rate. Local-currency gold can therefore perform differently from the U.S.-dollar chart.
Practical lesson
When evaluating past returns or current prices, make sure you know which currency the chart uses and whether currency hedging is involved in a fund.
Key takeaway
The best gold decisions usually come from understanding the product, the price components, the risks, the seller or custodian, and the purpose the gold serves in your plan. Compare multiple sources and verify important details independently.