After gold ceased to be the equivalent of the value in 1973, its interaction with the foreign exchange market became much more complicated. Turning just into a commodity, gold, at the moment, significantly depends on the US dollar, and obeys the whims of COMEX – CME speculators, as well as the sentiment of ETFs, mainly from the USA.
However, this was not always the case, for example, between 2009 and 2015, gold significantly correlated with the Japanese yen and almost did not correlate with the dollar and other currencies. The correlation coefficient between the yen and gold, then was 0.9, while the correlation between the euro and gold was not higher than 0.25.
I have no answer to the question – why does gold behave in this way? However, long-term observations of the price of the precious metal allow me to assume that the price of gold is less dependent on demand from technology and central banks and is more susceptible to seasonal growth, on the New Year’s Eve according to the lunar calendar, and significant price fluctuations in case of changes in demand of the North- American investment funds.
China’s attempts to create a US-independent oil pricing center, quoting it in RMB, with the possibility of further converting it to gold, in the first year of trading have already led to the fact that about one fifth of the volume of crude oil trading in New York is traded on the Shanghai Energy Exchange and Chicago. This is a direct challenge to the “petrodollar”, so far dominant in the calculations for energy, but this is not enough.
Oil trading for the RMB is a huge, but only the first step towards freeing the world economy from dollar dependence, and a partial return to the “gold standard” in financial circulation. However, at this stage, to draw statistical conclusions from the dependence of the renminbi and the price of gold seems to be somewhat premature, although I do not exclude such a possibility in the future. The Purchasing Power Parity Theorem considers a world in which there is no single, unified reserve currency, assuming many centers of world trade that not relevant to the current situation. However, the crisis of the global dollar-based currency exchange system and the trade wars unleashed by President Donald Trump are forcing governments of nascent power centers to seek a gradual replacement for the US dollar as the universal equivalent of value.
So, for example, when paying for goods in Asia, the Chinese yuan has already overtaken the Japanese yen and is gradually replacing the US dollar from circulation. At the St. Petersburg Economic Forum, held in early June, China and Russia agreed to exclude the US dollar from mutual settlements, Iran and Turkey are taking the same path.
The trend of abandoning the dollar is only gaining speed, but it is no longer possible to stop it. The more the United States introduces trade duties, the more it restricts financial settlements in dollars, the sooner the dollar will lose its function as a universal unit of account in world trade. Trade wars will inevitably lead to fragmentation of the world economy into separate currency and customs zones, where the Purchasing Power Parity Theorem will operate in its entirety, bypassing the intermediate link in the form of the US dollar. No one knows when this will happen, but no one doubts that this will happen.