Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
Gold Short-term Pull Back in Progress - 20th Mar 18
Stocks Appear to be Under Pressure - 20th Mar 18
Time To Eliminate Your Wall Street Tax? - 20th Mar 18
The Beast from the East Snow, UK Roads Driving Car Accidents - 20th Mar 18
Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - 19th Mar 18
2018 Reversal Dates for Gold, Silver and Gold Stocks - 19th Mar 18
This Tech Breakthrough Could Save The Electric Car Market - 19th Mar 18
Stocks Set to Open Lower, Should You Buy? - 19th Mar 18
The Wealth Machine That Rising Interest Rates Create Conflict With The National Debt - 19th Mar 18
Affiliate Marketing Tips and Network Recommendations - 19th Mar 18
Do Stocks Bull Market Tops Need Breadth Divergences? - 19th Mar 18
Doritos Instant £500 Win! Why Super Market Shelves are Empty - 19th Mar 18
Bonds, Inflation & the Market Amigos - 19th Mar 18
US Housing Real Estate Market and Banking Pressures Are Building - 19th Mar 18
Stock Market Bulls Last Stand? - 18th Mar 18
Putin Flip-Flops Like A Drunken Whore On Bitcoin Cryptocurrency Legalization - 18th Mar 18
How to Legally Manipulate Interest Rates - 18th Mar 18
Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - 18th Mar 18
Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - 17th Mar 18
Strong Earnings Growth is Bullish for Stocks - 17th Mar 18
The War on the Post Office - 17th Mar 18
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18
DasCoin: A 5-Minute Guide to How It Works - 15th Mar 18
Stock Market Downward Pressure Mounting - 15th Mar 18
The Stock Market Trend is Your Friend ’til the Very End - 15th Mar 18
6 Easy Ways to Get What Women Want, for Less! - 15th Mar 18
This Isn’t Your Grandfather’s (1960s) Inflation Scare - 15th Mar 18
Eye Opening Stock Market Index, Volatility, Charts and Predictions - 15th Mar 18
Gold Cup At Cheltenham – Gold Is For Winners, Not For Gamblers - 15th Mar 18
Upcoming Turnaround in Gold - 14th Mar 18
Will the Stock Market Make Another Correction this Year? - 14th Mar 18
4 Ways To Writing An Interesting Education Research Paper - 14th Mar 18
China Toward Sustainable Economic Growth - 14th Mar 18
Stock Market Direction Is No Longer Important - 14th Mar 18
Trade Tariffs Defeat Globalists and Return Prosperity - 14th Mar 18
Stock Market Crash is Underway and Cannot be Stopped! - 14th Mar 18
Are Energy Sector Stocks Bottoming? - 14th Mar 18
Nasdaq Stocks Soars to New Record High After Strong Job Reports - 14th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

Gold – It Is Still All About The US Dollar

Commodities / Gold and Silver 2017 Mar 10, 2017 - 01:00 PM GMT

By: Kelsey_Williams


In my original article I made the following statements:

“It means that holders of any non-USD currency who want to exchange it for gold, must first exchange it for US dollars and then exchange the US dollars for gold.

When anyone is selling gold, the proceeds are always paid in US dollars. The dollars can be held as such, or they can be exchanged for other currency.”  

Another professional labeled the above statements as “fiction”.

I do not agree.  But I do see the possibility for others to infer something other than what was intended.  Therefore, I apologize. And I have replaced the statements in question with the following:

When someone in Switzerland, for example, exchanges Swiss Francs for gold, they are quoted a price in Swiss Francs. That seems pretty straight-forward. But how is the price for gold in Swiss Francs calculated when the international market for gold is priced in US dollars?

The amount that someone pays in Swiss Francs (or any other non-USD currency) is determined by calculating the exchange rate between the US dollar and the specific non-USD currency involved. Based on that calculation, it is then known how many Swiss Francs are needed to equal the transaction amount in US dollars.

My original statements were intended to draw attention to the role of the US dollar in all transactions involving gold. I am aware that the statements above were not ‘technically’ correct.  And so some further clarification is in order.

When someone pays Euros, Yen, or Swiss Francs for gold, the amount they pay is calculated and based on two specific things, BOTH of which involve the US dollar.

The first is the US dollar price of gold:

“Gold is priced in US dollars and trades in gold are settled in US dollars because of the hegemony of the dollar and its role as the world’s reserve currency.”

The second is the exchange rate between the US dollar and the other currency used:

“On December 31, 2013, gold traded at $1210 per ounce. And on that day one euro could be exchanged for 1.3776 USD. Hence, 842 euros ($1210 USD divided by 1.3776 = 842) could be exchanged for $1210 USD which could then subsequently be exchanged for one ounce of gold.”

When you see the price of an ounce of gold quoted in any non-USD currency, it already includes the above two factors. There is no direct floating day-to-day market price for gold in any non-USD currency.

Quotes in other currencies that are posted in the Wall Street Journal, or on Kitco, or anywhere else, are based on  1) the US dollar price for gold and  2) the exchange rate between the US dollar and the respective non-USD currency.

I hope that is clear. And the statements above were intended to draw attention to the issue.

It was also pointed out that the market for gold in China is quoted in Yuan and trades in Yuan. Which is true.  But that market is an experiment that is still in its infancy.  And the participants are continually monitoring and hedging any consequential variance between the US dollar price for gold and the Yuan price for gold.

You don’t ‘need’ US dollars to pay for gold, and you certainly can use other currencies, but you are still paying the US dollar price for gold. And the amount you pay in any other currency is determined via the exchange rate formula above.

On to other things…

Within the past couple of weeks, there have been several articles attempting to analyze gold or explain various ways to analyze and measure gold.  It seems as if the focus on gold is heightened.  And yet, the price of gold (to some) appears to be ‘stuck’.

Let me propose a solution to all of the confusion.  What if we applied all of the time, attention, and expertise that is spent on gold to analysis of the US dollar.  Put another way, “how many different ways can you value the US dollar”?  How many different ways can you value ‘money’?  Said that way, it almost seems non-sensical.

Gold is real money.  The US dollar is a substitute for real money. Over time, the price of gold reflects inversely – and proportionately – the decline in value of the US dollar.

There is an initial ‘shock’ factor that seems to encourage traders to buy gold when an international event of consequence takes place.  These could be terrorist actions, political elections, assassinations, even natural calamities.  But the effect on the gold market is short-lived.

This is because any consequential and lasting impact on the price of gold is determined by what is happening to the US dollar, not the event itself.

A stable or stronger US dollar translates to a stable or lower US dollar gold price.  A weaker or declining US dollar translates to higher gold prices.

We are currently in a period of dollar strength which dates back to 2011, which, not just coincidentally, happens to be when gold peaked in US dollars.

And from 1999 to 2011 gold increased from $275 per ounce to $1900 per ounce while the US dollar went into free fall.

Part of the confusion surrounding gold is due to the fact that the effects of inflation created by the Federal Reserve are lagging and difficult to quantify.  And price action in gold trading is often based on expectations which are unrealistic.

There are many different ‘investment products’ which purport to represent positions in gold for trading purposes, and the trading activity can have a considerable effect on gold prices, regardless of faulty logic or unrealistic expectations.  Volatility can be extreme in the short term but the effects are muted over time.

And again, there is no correlation between interest rates and gold. Any effect that interest rates seem to have on the price of gold is the result of what is happening to the US dollar.  (see: Gold And Interest Rates – A Mass Of Confusion)

There are seemingly unlimited variations to the game of analyzing and interpreting, identifying and labeling, looking for correlations and chart patterns, combinations of events, etc.

But when it comes to gold, only one things matters.  The US dollar.

Irrespective of investment considerations, interest rates, or world events, it is STILL ALL ABOUT THE US DOLLAR.

By Kelsey Williams

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2017 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2018 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules