Gold usually does well during geopolitical crisis and turmoil. David explains that and more in this week’s update…
Gold usually does well during geopolitical turmoil and the current war crisis has boosted the prospects of the yellow metal. Crises such as wars, which have a negative impact on prices of most asset classes, have a positive impact on gold prices since the demand for gold goes up as a safe haven for parking funds.
But what about the weakening dollar? Under normal circumstances, gold and dollar share an inverse relationship. Since international gold is dollar denominated, any weakness in the dollar pushes up gold prices and vice versa. The inverse relationship is because firstly, a falling dollar increases the value of currencies of other countries. This increases the demand for commodities including gold. It also increases the prices. And secondly, when the US dollar starts to lose its value, investors look for alternative investment sources.
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