The gold price is making headlines for all the wrong reasons.
On Monday, gold futures in New York dropped back to their lowest finish
since December, ending the trading day at USD 1,241.70 an ounce.
Here in Australia, some media have referenced gold’s losing streak.
However gold, like other commodities, is traded internationally in US
dollars. This means media reports often fail to point out the impact of the
AUD/USD foreign exchange rate on the local price of gold.
The red line on this graph represents the price of gold in US dollars
which in January topped USD 1,300. Slipping below this level for the first
time in May, it declined consistently in June.
This movement coincided with a marked strengthening of the US dollar
against other world currencies, including the Australian dollar.
The result of such a move in the exchange rate has the effect of
supporting the local price of gold.
The AUD/USD rate has now declined from 0.81 at the end of January to
around 0.74, meaning one Australian dollar is now worth about 74 US cents.
The graph’s blue line represents The Perth Mint spot price over the same
period. It demonstrates how the decline in the value of the Australian dollar
relative to the US dollar has helped protect the value of Australian
investors’ gold holdings in terms of their own currency.
Looking at this from another perspective, those who bought in January
actually saw an increase in the value of their gold holdings priced in
Australian dollars.
