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Tuesday, August 30, 2011

How exchange rates affect the domestic Gold price?

If someone asks what determines the price of gold? And the obvious answer comes is the 'demand and supply' which determines the international gold prices, but apart from this exchange rates also play an important role in determining the price of the gold in a country.Gold is always priced in US dollars and exchange rate makes the price of gold sweet or sore for the investors.
When domestic currency of a nation appreciates against the dollar, domestic gold prices become cheaper.Strong local currency coupled with lower international price results in cheaper domestic gold prices while on the other hand weak local currency coupled with higher international gold price makes gold dearer.

Strong Local Currency
Weak Local Currency
Higher International Gold Price
 + -
Lower International Gold Price
- +

Thus investor should try to invest in Gold when local currency is stronger in comparison with the dollar.


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