The Dollar Value of Gold

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Break the golden rules

The modern economy has added more value to gold than the fundamental value of yellow metal. Although the most radical changes have taken place through aggressive merchandising, gold has always been the darling of the troubled world of derivatives trading. The intrinsic value of the commodity has managed to attract hedge fund managers around the world to the point that hedge fund manager Paul Singer, who oversees assets under management (assets under management) of $ 27 billion, has recently been quoted as saying, "It makes a lot of sense to own gold". Singer believes that in the highly competitive business world, the weak dollar is evolving into a pillar, boosting the volume of US exports so even the central bankers of the world are also focusing on the devaluation of their respective currencies.

When zero means more

Near-zero lending rates have not miserably recreated the long-awaited financial magic that central bankers hoped for, while deflationary scenarios are back on the court, turning low inflation and high unemployment into a complex quagmire. The world's major economies are rapidly turning into a death spiral, thereby supporting the dollar value of gold and turning the yellow metal into a safe haven for market makers around the world. Careful observation of commodity price movements reveals an uneven expansion and contraction of its prices, contradicting the conventional demand supply curve of the time-tested economy. Even as I write this article, an ounce of gold is surprisingly trading at $ 1,327, a notch below its three-year high of $ 1,392. The anomaly lies in the fact that the current dollar value of gold is in stark contrast to the euphoric price of the S&P 500 which stands at 2159. In the words of Stanley Drukenmiller, a former fund manager coverage at Duquesne Capital, central banks around the world has lost its grip on monetary policies, adding sparkle to the allure of Gold's safe haven. Drukenmiller then said he was skeptical about the global financial scenario due to the Federal Reserve's rocking over its current monetary position.

A golden dollar

The fact that gold is traded in dollars turns the equation in favor of a comfortable negative correlation. A weak dollar pleases gold investors, boosting demand for precious metals, while low-cost dollar-dominated loans keep base metal markets buoyant in China. It is therefore evident that gold would continue to benefit from the value that it places on aggressive derivative bets as long as the potential threat of possible tightening of liquidity is great. The equation tilts the balance in favor of high gold valuations, as do currencies against the dollar index. While the excessive weakness of the dollar leads to additional demand for gold, a weakness in the pound sterling or the euro prevents the demand supply mismatch, preventing the valuation of the metal yellow to exceed its designated price range.


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