Gold vs Dollar: Where to Hold Your Money in 2024

Written By Colin Kuehn  |  Gold 

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Whether you are a gold or dollar lover or just a casual investor, there are plenty of reasons to buy gold.

 One of the main reasons is the fact that gold is considered a standard of value in the world's monetary system. 

The gold value is also influenced by mining production and the demand for gold from exchange-traded funds. In addition, many investors prefer to buy gold through digital or sovereign gold bonds.

bars of gold

Demand for Gold

Throughout history, gold has acted as a safe haven for investors. It serves as a hedge against inflation, currency devaluation, or any other geopolitical tensions. The price of gold depends on a number of factors.

The US dollar is a major driver of the price of gold. Its strength versus major currencies such as the British pound, Swiss franc, and Canadian dollar, all factor into the DXY Currency Index.

Central banks are another important source of gold demand. In order to stimulate the economy, central banks often hold paper currencies in their reserves. They also diversify into gold.

Other Factors Influencing Gold Price

The Fed is highly hawkish and will likely raise interest rates in the near future. This will put the price of gold on the back foot. Historically, gold has struggled to gain during periods of high inflation. In the last five years, the amount of gold held in ETFs has increased significantly.

Unlike other metals, gold is not a commodity. Investors buy gold because of its intrinsic value, which enables investors to hold it for longer than paper money. Despite its intrinsic value, it is considered a safe haven because it does not provide a dividend.

In the past, gold prices and the dollar had a close correlation. However, today, gold prices are inversely related to the value of the dollar.

Gold's price is driven by a number of factors, including supply and demand, currency strength, interest rates, and geopolitical instability. However, the most important factor is the sentiment surrounding gold. The gold price has gained in value over the last 50 years.

The best way to understand the gold price is to look at the factors that affect it. If you are in the market for gold, you must consider all the factors.

gold next to an investment chart

Currency vs Gold Prices

Depending on the value of a nation's currency, gold prices can vary. In some countries, a lower dollar tends to lower the price of gold, while in others, a higher dollar tends to lower the price of gold.

Inflation is another factor that affects currency prices. Low interest rates tend to make borrowing money cheaper, and in turn weaken a nation's currency. Investors will often turn to safer assets, such as gold, when their currency is losing value.

A Historical Perspective 

Historically, there has been a positive correlation between gold and the dollar. However, this relationship is not set in stone. It is important to understand the factors that can affect gold prices.

The value of gold has risen substantially over the past 50 years. Historically, gold has exhibited high and low seasonal periods. However, this trend has leveled off in recent years.

The real gold price is the London PM fixing price for gold from the London Bullion Market Association. It is also the same measure used by the U.S. Bureau of Labor Statistics.

The real gold price tends to move with the long-term inflation expectation. In other words, one standard deviation increase in the fraction of pessimistic survey respondents raises the real gold price by nearly nine percent.

It is also the same measure used by the Federal Reserve Board of Philadelphia's Survey of Professional Forecasters. The graph below shows that a ten-year inflation expectation of three percent is accompanied by a 37% increase in the real gold price. This is in line with the "inflation hedge" theory.

Another factor that affects gold prices is the sentiment of investors. Generally, investors will invest more during inflation. This can be due to an increase in demand from industry or the rising value of tangible assets. The gold price is also driven by central banks.

a chart with interest rates going up

Rising Interest Rates a Headache for Gold?

Historically, gold prices have been driven up when interest rates are rising. But that doesn't mean that they will remain that way. Some market observers believe that higher interest rates will lead to a decline in gold prices.

There's no evidence to back up that theory. In fact, the relationship between gold prices and interest rates is less clear than other factors.

While gold prices have declined this year, gold bugs are expecting them to bounce back in the coming months. Central banks have stepped back into the gold market, and are buying more gold than in the past. In fact, 400 tonnes have been added to reserves this year, according to the World Gold Council.

The Influence of a Rising Dollar

The rise in the dollar has been a headache for many assets this year. This has led to a drop in global equities, commodities, and bonds. The US dollar is seen as a safe haven and has been a key driver of rising interest rates. However, it's been a headache for gold as well.

When interest rates are rising, investors tend to rebalance their portfolios more towards fixed-income investments like bonds. This is especially true in the stock market.

As interest rates increase, gold holders are unable to receive interest income. In turn, this forces gold prices down. But in periods of high inflation, gold prices can rise. The rise in prices depends on a number of factors.

Gold prices are driven by general supply and demand. In some markets, like China, gold trades at a premium. The price of gold is driven more by demand than supply. In other markets, like Russia, supply changes slowly.

In Russia, gold is no longer reported by the central bank. Russia's currency is based on the rouble, which is disconnected from the dollar-based international payments system.

India's Influence on Gold Prices

Despite its recent slowdown, India remains the world's second-largest gold consumer. It accounted for more than 25 percent of global gold demand last year.

The country's demand for physical gold rose in October. Gold imports rose to $55.7 billion, up more than double from the year before. Gold was the most popular festive gift for Diwali, an Indian festival of light, and many people dedicated gold purchases to the deities.

The world's second-largest gold importer and consumer boosted imports in October, led by strong jewellery sales. Diwali is associated with prosperity and good luck, and the five-day festival sparked a surge in gold demand.

Gold is considered auspicious in the Jain culture, and weddings are a major driver of gold demand in India. The ancient law-giver Manu decreed the wearing of gold ornaments for important occasions.

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Other Factors 

The gold market has struggled in recent years due to high inflation and government policy. New Delhi has tried to curb gold smuggling by increasing import duty. It has also tried to monetise gold. Despite the challenges, India's gold demand is still expected to increase in the coming years.

New Delhi has also tried to reform its bullion market, introducing the International Bullion Exchange (IIBX). Qualified jewellers will now be able to import gold directly from IIBX. It will also facilitate a transition to a more structured and organized bullion market.

Gold is a good hedge against inflation and currency depreciation in India. It is also used for a number of technological applications, including dental appliances, medical applications, and fabrication of electronics.

India's per capita gold demand is relatively low. However, it is price-elastic. It tends to rise in the second half of the year. However, higher inflation and higher domestic gold prices could put pressure on the rupee and curb demand in the near term.

QE Risks for Gold 

Traditionally, gold performs well during periods of economic weakness and financial turbulence. However, some investors fail to consider the volatility and opportunity cost of owning gold.

Quantitative easing is a monetary policy technique used by central banks to help the economy grow. Central banks print money and repurchase assets on their balance sheets. This process can help to stimulate the economy and increase GDP growth during periods of crisis. However, if the money doesn't trickle down, it can create an asset bubble.

Gold is widely viewed as a hedge against inflation. It can also serve as a diversification tool. However, it isn't the only form of inflation protection available.

Gold prices are affected by interest rates, currency fluctuations, and investment demand. In addition, the supply and demand of gold is determined by mining production.

The inverse correlation between the price of gold and the price of currency was not always the case. The inflation-related gold-rate-to-currency ratio wasn't strong until after the Great Depression.

In recent years, gold has risen to new heights, primarily due to liberal central bank policies. It has also outperformed digital assets such as the bitcoin and 10-year TIPS bonds.

Quantitative easing can have a negative effect on gold. The Federal Reserve has started to taper its quantitative easing program, which means that the excess money it's been creating will stop flowing through the economy. This will create a gold market shock.


Gold has been linked to government policy for centuries. In ancient Egypt, gold was thought of as a store of wealth. Today, it serves as a strategic component in many portfolios. The price of gold has been increasing in nominal terms, but real gold appreciation is likely to come in the form of real value.

Last Updated: December 31, 2023