In addition to its important role as a commodity, gold is certainly one of the oldest trading means that the human race knows. As a matter of fact, gold has a double purpose; it can serve as a commodity as well as a currency. As a commodity, gold has amazing properties; it is dense, soft, lustrous, malleable, brilliant and ductile. As a currency, gold is all-pervasive around the world. On that premise, the following article presents an overview on the history of gold and takes a deep dive on its relationship with the U.S. dollar.
The history of gold and its symbolism
First discovered in river bottoms in its natural state between 5,000 and 3,000 BCE, gold has been coveted by civilizations throughout history. Even in this day and age, gold still remains a proxy of prosperity and wealth and the ultimate symbol of human achievement. In the course of history, gold, which is a rare metal, was used by a substantial number of governments as a safe-haven asset to back their currencies in case things go awry on the economic front. In fact, while a lot of governments still maintain a lot of gold, none of them uses it in order to back their money in this day and age. That being said, the U.S. dollar is considered to be the standard for pricing this rare yellow metal. For that reason, there is a unique relationship between the currency value of the United States and the price of gold.
The U.S. Dollar vs Gold
As gold is considered to be an asset, it has an inherent value. This value, however, can fluctuate over the course of time and, in some cases, in a volatile way. For the most part, when the U.S. dollar value increases in comparison to other currencies, the price of the yellow metal tends to decrease in terms of the U.S. dollar. The reason behind this being that the price of gold becomes higher in other countries, which means there will be fewer buyers, which means less demand. On the other hand, as the U.S. dollar value decreases, there will be more demand for gold so it appreciates. That said, the U.S. dollar value is not the sole facet that affects the value of gold; interest rates also affect it. If the U.S. central bank increases interest rates, interest rates across the economy will increase. This will attract more capital and investors from all over the world to invest in the U.S. and, consequently, buy the U.S. dollar.
In addition to being one of the world’s most precious metals that has an imperative role in the economy and that appreciates ahead of its industrial usage, gold is one of the most widely traded metal commodities. In fact, there are several reasons to engage in gold trading. As gold preserves its purchasing power and performs great at the expense of other assets, it can serve as a hedge against inflation and turbulent times in the world’s economy. Gold trading can also be popular among investors who want to diversify their portfolios.
A durable, consistent, divisible and valuable currency, gold still remains one of the world’s most storied currencies that serves as a barometer with regard to the safety and security of governments and their economy.
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