Interrelationship

between dollar,
gold, oil and
real estate
HISTORY BEHIND
LINKAGE OF
GOLD, DOLLAR
AND OIL
TIMELINE
NAVIGATION
1848 Inception of gold standard

1861 Issuance of us currency

1913 Creation of federal reserve

Gold standard made the

1930s
great depression worse

1944 The Bretton wood agreement

1965 Devaluation of dollar

1971 Demise of gold standard (Nixon shock)

1974 Petrodollar economy

 Correlation between US$ and gold

As the chart shows, there’s an inverse

relationship between the trade-weighted
U.S. dollar and the price of gold. Trade-
weighted value shows how the U.S. dollar
is gaining or losing purchasing power—
compared to its trading partners.
However, this inverse relationship isn’t as
precise as it used to be under the gold
standard. Even though the gold standard
is gone, there’s still a psychological tilt
towards gold whenever the value of the
U.S. dollar decreases.
 REASONS BEHIND INVERSE RELATIONSHIP
Preservation of Wealth
Because of gold’s consistent value
around the world, many investors see
precious metals as a way to preserve
wealth despite social-economic turmoil
that could flatten fiat currencies.
Gold-to-silver ratio
When trading commodities,
sometimes it’s easier to make
investments that can increase your
profits. Using the gold-to-silver is
a perfect example of how
commodity trading can increase
your wealth
Portfolio diversification
Your ability to invest in something other that
fiat currencies, stocks, and bonds can help
you save if market trembles. One of the key
principles of investing is diversification.
With a precious metals portfolio you can
ensure that all your investments won’t be
lost because of negative market volatility.
Hedging against inflation
Investors typically buy large quantities of
gold when their country is experiencing
high levels of inflation. The demand for
gold increases during inflationary times
due to its inherent value and
limited supply. As it cannot be diluted,
gold is able to retain value much better
than other forms of currency.
 Correlation between US dollar and crude oil

USA is the largest importer of crude oil.

The country suffers a huge capital flight
as a large sum of us dollars flows out of
the country straight towards OPEC
countries. Besides USA holds major
investment in oil drilling activities and
holds largest oil reservoir in the world.
As shown in chart there exists negative
correlation between US dollar and oil
prices.
There are many factors that have impact
on oil pricing such as global demand,
OPEC cartel, taxes, environment policies,
geopolitical conflicts, logistics and
infrastructure, changing supply landscape
but lets analyze it on account of currency
fluctuations.
 Reason behind negative
relationship
Pegged dollar relation OPECS pricing
As oil are dollar denominated The pricing strategy for crude
commodities, devaluation of dollar oil by OPEC members shows
leads to limited supply of oil because demand and supply relationship
OPEC doesn’t want to undertake of oil over dollar.
risk and loss associated with weaker
currenies rather diverts towards Oil price commodity
safe heaven such as gold, other
currencies etc. Inflation value of dollar
Correlation between crude oil and gold
Oil influences gold
Raising oil prices is not favorable to economy, dampening growth and
dropping stock prices so investors look for alternative assets such as gold.
Thus oil price indirectly affects the price of gold.

Oil affects gold mines

Gold mining tools, equipment and machineries require large volume of oil
as energy fuel so expensive oil makes gold extraction more expensive and
therefore minimize the profit margin of gold.