Dollars and gold
When the dollar falls, gold rises, while when gold falls, the dollar tends to rise, and gold and the dollar are negatively correlated for most of the year. Why can the dollar affect the price of gold so strongly?
There are three main reasons: first, the US dollar is the pillar of the current international monetary system, and the US dollar and gold are the most important reserve assets. The strength and stability of the US dollar weakened the position of gold as a reserve asset and a value-preserving function. Second, American GDP still accounts for 1/4 of the world GDP, and the total foreign trade is the highest in the world, which deeply affects the world economy, while the price of gold is obviously inversely proportional to the quality of the world economy. Third, the world gold market is generally priced in dollars, so the depreciation of the dollar will inevitably lead to an increase in the price of gold. For example, at the end of the 20th century, when the price of gold reached a low point, people threw out gold in succession, which was closely related to the continuous growth of American economy 100 months and the strength of the US dollar.
Dollars and oil
As the world's largest oil consumer and net importer, the rise in oil prices will undoubtedly have a negative impact on the US economy and lead to fluctuations in the real exchange rate of the US dollar. Historically, all previous oil crises have caused the recession of the American economy, which is the main reason for the fluctuation of the real exchange rate of the US dollar. However, the analysis of the real exchange rate trend of the US dollar will be different from that of the general oil importing countries. The main reason is that international oil transactions are all denominated and settled in US dollars, and the rise in oil prices means an increase in demand for US dollars, so the US dollar may remain a strong currency, which makes the analysis complicated.
Scholars' theoretical research and empirical analysis show that the fluctuation of oil price is the main factor leading to the change of the real exchange rate of the US dollar. To sum up, the sharp rise in oil prices mainly affects the nominal exchange rate of the US dollar through the following three ways, and then affects the fluctuation of the real exchange rate of the US dollar.
First of all, rising oil prices will increase the cost of means of production and living in an all-round way, leading to an increase in inflation rate, which in turn will increase the demand for nominal money and domestic credit, thus attracting more foreign investment into the United States. The inflow of foreign capital will lead to the rise of the exchange rate of the US dollar. At the same time, domestic monetary policy in the United States tends to strengthen the appreciation of the dollar. At the beginning of rising oil prices, the Federal Reserve often adopts tight monetary policies such as raising interest rates to control inflation, so that the increase in interest rates will attract more foreign capital inflows and lead to the rise of the nominal exchange rate of the US dollar.
Second, the rise in oil prices has caused the trade surplus of oil exporting countries, and the foreign exchange reserves dominated by US dollars have increased, resulting in the so-called "petrodollars". These petrodollars will enter the international financial market to buy a large number of dollar assets for profit, which will lead to the rise of the nominal exchange rate of the dollar.
Third, the continuous rise in oil prices will lead to the recession of the world economy, making the balance of payments of oil-importing countries uncertain. Therefore, these countries have increased the proportion of US dollar assets in their foreign exchange reserves to maintain the stability of the exchange rate, which further increases the demand for US dollars and leads to the rise of the nominal exchange rate of US dollars.
Under the comprehensive effect of the above three influencing mechanisms, the nominal exchange rate of the US dollar rises when the oil price rises. When the nominal exchange rate rises, the change of the real exchange rate level depends on the ratio of the domestic price level in the United States to the foreign price level. Because the oil consumption in the United States is greater than that in other countries, the impact of rising oil prices on the overall price level in the United States is greater than that in other countries. In this way, the rise of the relative price level is consistent with the change direction of the nominal effective exchange rate, so when the oil price rises, the real exchange rate level of the US dollar will also rise.