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. Since the gold market price is priced in US dollars, the appreciation of the US dollar will push the price of gold down, while the depreciation of the US dollar will push the price of gold up. The strength of the dollar will have a very significant impact on the price of gold. A strong dollar generally means that the domestic economic situation in the United States is good, domestic stocks and bonds in the United States will be sought after by investors, and the function of gold as a means of value storage will be weakened; The decline in the exchange rate of the US dollar is often related to inflation and the stock market downturn, and the value-preserving function of gold is once again reflected. This is because the depreciation of the dollar is often related to inflation, and the high value of gold will often stimulate the preservation of gold and the increase of speculative demand in the case of the depreciation of the dollar and the intensification of inflation. In August of 197 1 and February of 1973, the US government announced the depreciation of the US dollar twice. Influenced by the sharp drop in the exchange rate of the US dollar and inflation, the price of gold rose to the highest level in history at the beginning of 1980, exceeding $800 per ounce. Looking back on the history of the past 20 years, if the dollar strengthens against other western currencies, the price of gold in the international market will fall. If the dollar depreciates slightly, the price of gold will rise gradually.
From the demand of gold, because gold is denominated in dollars, when the dollar depreciates, investors who use other currencies such as the euro will find that when they buy gold in euros, the same amount of money can buy more gold, thus stimulating demand, leading to an increase in demand for gold, and then pushing the price of gold higher. On the contrary, if the dollar appreciates, the price of gold will become more expensive for investors who use other currencies, which will curb their consumption, and the decrease in demand will lead to a decline in the price of gold.
From the perspective of gold production, most gold mines are outside the United States, and the appreciation or depreciation of the US dollar has had a certain impact on the interests of gold producers. Because the production cost of gold mines is calculated in domestic currency, and the price of gold is calculated in US dollars, when the US dollar depreciates, the production cost of producers outside the United States increases, while the domestic currency exchanged for export decreases, and the profit decreases, which discourages the enthusiasm of producers. For example, in South Africa, in 2003, the appreciation of the local currency against the US dollar (equivalent to the depreciation of the US dollar) was greater than the increase in the price of gold, which led to a loss rather than a profit for gold mines, which eventually led to a decline in gold production and supply.
In addition, the appreciation or depreciation of the dollar represents people's confidence in the dollar. The appreciation of the dollar shows that people's confidence in the dollar has increased, which has increased their holdings of the dollar and relatively reduced their holdings of gold, which has led to a decline in the price of gold. Conversely, the depreciation of the dollar leads to an increase in the price of the dollar. For example, since the 1980s and 1990s, the American economy has developed rapidly, and a large amount of overseas funds have flowed into the United States. During this period, because the return from investing in other markets was much greater than that from investing in gold, investors withdrew from the gold market on a large scale, resulting in a continuous decline in gold prices for 20 years. After entering 200 1, the global economy fell into recession. The United States continuously lowered the federal funds rate 1 1 times, which led to a rapid decline in the exchange rate of the US dollar against other major countries. In order to avoid inflation and currency depreciation, investors began to return to the gold market, which made the trend of gold appear a key turning point. Since 2002, although the American economy has gradually emerged from the gloom of recession, it still faces many challenges due to the negative impact of the Iraq war. In 2003, overseas investors began to pay close attention to the twin deficits issue in the United States. Although the Fed tried to reduce the trade deficit through currency devaluation, this method did not seem to work. The attraction of the dollar to overseas investors is getting smaller and smaller, and a large amount of funds flow out to markets such as Europe. The subprime mortgage crisis in 2007 pushed the American financial crisis to a climax. The dollar depreciated rapidly, and the scale of gold investment also reached a record high.
It is worth noting that the negative correlation between the dollar and gold is based on the long-term trend, and in the short term, there are no exceptions. For example, in 2005, the dollar and gold rose simultaneously. The main reason for this situation is the political and economic turmoil in Europe: the integration process is facing the crisis of collapse due to the failure of the French referendum, and the European economy has been stagnant. Britain's economic development has stagnated and regressed. The European Central Bank, which should stimulate the economy by cutting interest rates, is in a dilemma because of the spread between the dollar and the euro. The current interest rate can only be barely maintained. The Bank of England cut interest rates to stimulate the economy, so the euro and pound were sold off by the market. In the short term, investors can only return to the dollar and gold markets for safety, which has promoted the simultaneous rise of the dollar and gold.