The Relationship Of Crude Oil Prices, Gold And U.S Dollar Which You Don't Know In 2020

The Relationship Of Crude Oil Prices, Gold And U.S Dollar Which You Don't Know In 2020

The raw material resource provides stability and economic growth in many oil-producing countries. As the USA is an oil-producing country and at the same time its largest consumer, the US dollar is directly related to oil production. Oil oversupply in the market at first has a positive effect on the US currency, since with an excess of prices fall, and this has a positive effect on the balance of payments, and therefore becomes a good stimulus for the economy. Now we will explain the relationship between crude oil prices, gold and U.S dollar.

Fundamental factors are the basis of trade on the international exchange market, they allow to establish the relationship of exchange rates with certain events. The forex market is affected by commodities on the exchange, such as silver, gold, and oil. The dependence of the currency and commodity markets makes it possible to forecast exchange rates for currency pairs.

It is often said that the price of the US dollar, as a world currency depends on oil and gold and that any change in the value of these raw materials affects the price of the US currency. The level of such dependence in the world, in general, is most often expressed by the number of particular minerals, which act as a kind of commodity or “currency” on world financial markets. However, in this case, they should be viewed not as trading tools in financial markets, but as indicators of the exchange market conditions. 

Mining for oil

Oil or as it is also called “black gold” raw materials, which are an integral part of the economic sustainability and competitiveness of the economies of many countries of the world. The rates of most major currency pairs are falling or rising, depending on the price per oil barrel. The crude oil prices is the main indicator in the global economy and experts say that this situation will not change soon. The oil price and the economic conditions of many countries are based on a few simple facts:

The economy of the countries supplying crude oil is interested in high prices for it;

The countries that depend on oil imports for their energy needs benefit from lower oil prices and they lose out is oil price grows;

When the country's economy is developed, its currency is also in demand in the forex market;

When the country's economy is in recession, the currency of that country falls in value relative to other currencies.

What is the relationship between crude oil prices and the U.S dollar?

Stock traders already know that crude oil prices rising negatively affect the stock prices of companies whose activities are highly dependent on oil, such as airlines because more expensive oil means higher costs and lower profits for these companies. In the same sense, practically, the country's dependence on oil determines the problems with the oil exchange rate. The colossal dependence of the United States on foreign oil makes the US dollar respond to changes in crude oil prices more than other countries and currencies. Therefore, any sharp increase in crude oil prices, as a rule, adversely affect the US dollar.

The reason for this connection lies quite deeply, but the changes occur immediately, as the market tends to react even before fundamental changes based on psychological factors. When considering the influence of oil price on the US dollar, a rather unambiguous situation develops, because the USA is one of the largest producers of black gold, at the same time acting as the largest consumer of this type of raw material. According to statistics, the economy of the United States does not have enough of its oil reserves to meet the needs of all production, while part of the oil produced in the country is exported. For this reason, the USA is forced to buy about 9 billion barrels of oil annually, which is significantly reflected in the increase in the value of US goods both domestically and foreign markets. And the increase in the value of goods, as is known, always leads to negative consequences for the national currency. Besides, the negative impact of the US dollar exchange rate is also exerted by the fact that to purchase oil, companies have to buy other foreign currencies as exporters do not always agree on calculations in US dollars. For example, several Arab countries not so long ago completely switched over to payments for oil per euro. As a result of these two factors, we see the following picture: the price of oil rises, as a result, the supply of the US dollar in the forex market increases, as a result of which its rate goes down.

At the same time, the decline in oil prices, the opposite situation is observed, the US dollar is beginning to grow actively. It is possible to use this aspect in trading in such a currency pare like US dollar / Norwegian krone, it is this currency pair that begin to fall in price oil price rises on world markets.

In the case of the Euro (EUR), the price of oil does not have such a pronounced effect as in the previous case, sometimes there is a direct correlation, in which the rise in the price of oil causes a slight increase in the Euro. More often, the opposite trend can be observed, in which, against the background of a sharp strengthening of the euro currency, there is a significant increase in oil prices. For example, since the beginning of 2012, the euro currency pair EUR /USD has risen by more than 400 points, at the same time there was a noticeable increase in the cost of one barrel of crude oil by more than 10%.

Thus, we can conclude:

The currency of the countries that produce and export oil price will rise if the price of oil rises;

The currency of countries whose economy depends on the price of oil fall in price with the rise in oil prices.

The next tool that also influences the international exchange market is gold. Gold is still very popular in the world because of its “conversion” into any product or currency. Gold is important for in the world – it is a historical fact. The volume of gold reserves of a single state is not the last characteristic of the internal economy and stability within the country.

In his book, Intermarket Technical Analysis, John Murphy argues that: “The turns of gold are ahead of the reversals of the commodity markets as a whole. The minimum price of gold, which usually coincides with the important maximum of the dollar, suggests that inflationary pressure is only beginning to increase, and over time will lead to a fall in the bond and equity markets. The maximum price of gold, which usually corresponds to the minimum of the US dollar, is an early sign of easing inflation. At the same time, gold can simultaneously grow or fall along with the stock market. ”

First, it is recommended to consider the relationship of gold with the US dollar. Although the United States is the second-largest producer of gold in the world, the rise in gold prices leads to a seemingly illogical result — a decrease in the dollar rate. Such a reaction is a consequence of the attitude of investors to precious and rare-earth metals. In periods of economic or political instability, investors turn to gold as a “haven” to preserve the real value of capital. This is not surprising, because you can print as many dollars as you like, and gold is a limited resource.

What is the relationship between gold and the U.S dollar?

If the demand for gold is growing, it means that import banks will need more currency from gold-producing countries soon, i.e. Australia and Canada to meet the demand for gold from investors. Thus, the AUD /USD or CAD\USD currency pair will have strong upside potential. The positive correlation of these pairs with gold is approximately 0.8 and 0.84, respectively. NZD / USD follows the same path as AUD / USD simply because the economy of New Zealand is close to the Australian one.

The Swiss franc also has a strong connection with the price of gold. However, the positive correlation of the CHF / USD pair with gold at 0.84 is due to other reasons. There are no large gold deposits in Switzerland, like in Australia or Canada. But the Swiss franc is partially tied to gold. And this explains why, during periods of instability, this currency is growing. Like gold, it becomes a currency haven.

What is the relationship between crude oil prices and gold?

The demand oil is highly correlated with the economy, that is, when the economy is good, the demand for oil will increase, and the price of oil will rise. As a result, the cost of various types of goods will rise, resulting in the risk of inflation, when the investors of Emmanuel will transfer their investment position to more valuable gold, as the demand increases, the price of gold will rise. Simply put, the relationship between the two is a positive interaction.


In conclusion, it should be said, since the US currency is closely related to gold and oil, then hypothetically it is firmly enough in the global financial market, moreover, is the reserve currency of many countries, the economies of these countries and the value of the national currency will always be closely linked to the US dollar, and through it with oil and gold. Conducting such an analysis, of course, one should not forget about other factors, for example, macroeconomic indicators that also affect the dollar and its value in the global Forex market.

Thus, the dynamics of commodity prices - gold and oil has a significant impact on the forex market. Understanding the nature of the exchange rates and price dependence of gold and oil makes it possible to accurately predict the direction of movement of the exchange market.