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Gold vs. The Dollar: Explaining The Commodity-Dollar Relationship

It’s a long-established trend that when the U.S. dollar is up, gold is down, and vice versa. There are many factors at play in this dynamic, one of which is the Commodity-Dollar relationship, a trend that shows an inverse relationship between commodities and the U.S. dollar.

Commodities are a mixed bunch of assets with wildly different uses and methods of production, but commodity prices appear to move in tandem with each other. There are two factors that relate to rising commodity prices.

Gold as a Commodity

  1. The Commodity-Dollar Relationship – For better or worse, the U.S. dollar is the standard for global trade. Oil is traded exclusively in American dollars, as are most other commodities. When the U.S. dollar rises in comparison to other national currencies, it becomes more expensive for the rest of the world to buy metals, energy, and agricultural products. Just take a look at gold prices here at Silver Gold Bull. When the U.S. Dollar is strong, buying gold in Canadian dollars can be more expensive even if the gold spot prices in USD are down. But when the U.S. dollar loses value in comparison to currencies like the Euro, the pound, the Canadian dollar, and the yen, it becomes relatively cheaper for buyers around the world to buy commodities. Investors outside of the U.S. jump on the chance to buy silver online or gold, not to mention oil, aluminum, rubber, chemicals, and corn.

    For now, the U.S. dollar seems to have been buoyed by trade war fears, especially with China. That’s because the U.S. dollar is typically seen as a safe-haven currency. All other currencies are risk currencies compared to what remains essentially the global standard. But long-term damage to the economy and rising inflation will ultimately take its toll on the strength of the dollar and that means good news for commodities, especially gold.

    It may soon be time to take advantage of higher gold and silver prices. You can sell us your gold and silver quickly and easily, starting with our online form to get a quote for your gold and silver. Then we email you a shipping label, so you can mail in your gold and silver and get paid sooner. Timing is everything when it comes to earning money from gold and silver. If you buy and sell at the right prices, precious metal trading can be a reliable way to benefit from market forces that usually cause stock traders to lose out. Get in touch with Silver Gold Bull about your precious metals now.
  2. Commodities Super-Cycles – The second reason commodity prices tend to rise in tandem is a commodities super-cycle. This is what happens when the world is hungry for raw materials and there’s evidence that the cycle of commodity booms goes back as far as early Industrial England. There were booms after both World Wars when Europe (and after the second, Asia) were busy rebuilding infrastructure and entire cities.

    The commodities super-cycle has a profound impact on the international economy, investors, and your everyday expenses. Just about every consumable good from electronics to bread starts with commodities, which means rising commodity prices affect your grocery bill, your gas bill, the cost of a car, the cost of a new home, the price of computers and smartphones, and everything in between. rising commodity prices push inflation higher – yet another push factor driving investors toward gold as an inflation hedge.

    Gold does get used in manufacturing, but not nearly to the extent that silver or platinum are. But that doesn’t mean that gold isn’t affected by increased demand for commodities. When super-cycles set in, all commodities tend to rise with the tide.

Gold as an Exchange of Value

Among commodities, gold has a truly unique role, as until very recently, it was the foundation on which currencies had been built. Until the 1970s, gold had backed the U.S. dollar under the Bretton Woods system, providing the stability of gold-backing to a global economy which used the U.S. as its backbone. Bretton Woods was implemented to help rebuild the international economy after World War II. It’s been less than 50 years that the world has relied strictly on free floating fiat currencies. Past attempts at fiat currencies that were not redeemable for specie (i.e., gold) have almost all resulted in hyper-inflation throughout the centuries, from China’s Yuan dynasty to New France to the Weimar Republic.

Unlike commodities like rubber, soybeans, coffee, oil, and aluminum, gold is used very differently. Other commodities are consumed as food or used in construction or manufacturing. Even other precious metals like silver, platinum, and palladium have industrial uses beyond their value as investments. But gold’s primary use is as an exchange of value, an original currency against which fiat currencies continue to be compared. It’s not just that international demand for gold rises when the dollar is low, it’s that a weaker dollar decreases confidence in the dollar, and investors move their money into gold to preserve their wealth.

If you want to put the faith of your wealth into an exchange of value that appreciates rather than depreciates over time, you want to buy gold. It’s also incredibly easy today to find gold coins and bullion at reasonable prices, and the best way to buy gold online is to invest in gold coins and bars, as well as keep it in allocated storage. Buying gold online has lower fees than coin shops, while allocated storage is the safest way to store your gold off-site. You can find both low fees and allocated storage solutions at Silver Gold Bull.

When inflation rises and keeping cash in currencies will lose money fast, silver prices also benefit. While silver has more widespread industrial use, investors still see silver as a good precious metal for storing an exchange of value.

August 27, 2018