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In a broader sense, oil prices are influenced by socio economic as well as geo political factors. When political tensions arise in oil regions, oil prices seem to climb upward. It has been noted that there is a strong relation between Oil, gold and dollar, however it is the market trend that decides whether the relation is direct or inverse.
Let`s glance through a few indicators -
Gold, crude oil and dollar are interconnected and interdependent for the valuation
since there was age-old practice of oil producing countries to hold gold in exchange
for oil.
Oil, gold and commodities have all been priced in US dollars since 1975 when
OPEC officially agreed to sell its oil exclusively for US dollars. Since then the global
oil trade was priced in dollar. Hence any appreciation or depreciation of dollar impac
oil prices.
Crude prices directly affect the oil import bill of any country resulting into trade
deficit. This trade deficit would pressurize the value of local currency eventually
hitting money circulation in the economy thereby leading to the inflation. Inflationary
conditions in crude oil markets, which stoke uncertainty, inevitably spark a rally in
global gold prices.
Gold plays an anticipatory role. Gold which acts as the hedging option against the
inflationary situation for investor, attract investments, thereby leading to appreciation
in value. If crude price rises, Gold also moves up.
All over the world, the international trade is denominated in US currency. Hence any
negative news about the US economy, such as slowdown in consumption, rise in
inflation, or a cut in interest rates by the Federal Reserve, weakens the dollar. As
the dollar`s exchange value falls, it takes more dollars to buy gold so the dollar falls,
while gold prices rise and vice versa.
Similarly, most of the countries hold foreign reserves in the form of US dollars. If the
dollar loses value, the entire basket which is denominated in US dollar, loses value.
So, countries look for safe haven i.e. Gold. If dollar loses value, Gold moves up, and
vice versa.
Foreign gold market paves the path for the Indian gold market as almost the entire
gold requirement is met thought imports. Besides, volatile financial markets, appear
to be good for gold as an investment.
To conclude, one would find an inverse relation between dollar and gold; however the gold and oil prices are directly related to each other. In recent days, the gold, crude oil are considered to be crucial commodities whose prices are directed by geopolitical tensions and economic uncertainties. In the light of the above facts, it may be inferred that it is the US currency that rules the gold and oil markets
Click Here to check original article.
In a broader sense, oil prices are influenced by socio economic as well as geo political factors. When political tensions arise in oil regions, oil prices seem to climb upward. It has been noted that there is a strong relation between Oil, gold and dollar, however it is the market trend that decides whether the relation is direct or inverse.
Let`s glance through a few indicators -
Gold, crude oil and dollar are interconnected and interdependent for the valuation
since there was age-old practice of oil producing countries to hold gold in exchange
for oil.
Oil, gold and commodities have all been priced in US dollars since 1975 when
OPEC officially agreed to sell its oil exclusively for US dollars. Since then the global
oil trade was priced in dollar. Hence any appreciation or depreciation of dollar impac
oil prices.
Crude prices directly affect the oil import bill of any country resulting into trade
deficit. This trade deficit would pressurize the value of local currency eventually
hitting money circulation in the economy thereby leading to the inflation. Inflationary
conditions in crude oil markets, which stoke uncertainty, inevitably spark a rally in
global gold prices.
Gold plays an anticipatory role. Gold which acts as the hedging option against the
inflationary situation for investor, attract investments, thereby leading to appreciation
in value. If crude price rises, Gold also moves up.
All over the world, the international trade is denominated in US currency. Hence any
negative news about the US economy, such as slowdown in consumption, rise in
inflation, or a cut in interest rates by the Federal Reserve, weakens the dollar. As
the dollar`s exchange value falls, it takes more dollars to buy gold so the dollar falls,
while gold prices rise and vice versa.
Similarly, most of the countries hold foreign reserves in the form of US dollars. If the
dollar loses value, the entire basket which is denominated in US dollar, loses value.
So, countries look for safe haven i.e. Gold. If dollar loses value, Gold moves up, and
vice versa.
Foreign gold market paves the path for the Indian gold market as almost the entire
gold requirement is met thought imports. Besides, volatile financial markets, appear
to be good for gold as an investment.
To conclude, one would find an inverse relation between dollar and gold; however the gold and oil prices are directly related to each other. In recent days, the gold, crude oil are considered to be crucial commodities whose prices are directed by geopolitical tensions and economic uncertainties. In the light of the above facts, it may be inferred that it is the US currency that rules the gold and oil markets
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