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Updated 21:58 22/04/19

Gold in 2018: Down in Dollars but record-breaking year for most currencies

Liam Sheasby

By Liam Sheasby, News Editor

28 Jan 2019


The price of gold was relatively flat and stable in 2018, ending the year down by 1.5% and recording the first annual decline in gold price since 2015. Gold ended 2018 at $1,280.51 per ounce, having seen highs earlier in the year of $1,360 per ounce, but the strong US Dollar has played with both the industry gold price and the wider awareness of gold’s potential.

In 2018, gold set record high prices or near highs in 72 currencies (these can be seen at the bottom of the article). Close to making this list were the Pound Sterling, Swiss Franc, Euro and Chinese Yuan, all of which suffered from the US Dollar’s fierce rise in popularity.

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Why did the Dollar do so well?

The Dollar’s sudden popularity was due to a combination of tax cuts, infrastructure spending, and interest rate rises stateside, as well as the ongoing US/China trade war. America is seen as the likely victor, and also holds a trade deficit with China meaning it has more to tariff than China has of American goods. Logically – something which President Trump has cited – the US can outlast (and has) China’s attempts to retaliate. With the US spending programmes ongoing it was only logical for investors to take advantage of a fertile economy and inject their cash. The result was record-high stock prices for the Dow Jones, Nasdaq, and S&P500, but while all this was going on, the gold price was rising elsewhere.

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Why is gold priced in Dollars primarily?

The US Dollar is the world’s largest currency, which is a major factor in gold being dollar-denominated for international trade. Prior to 1917, the Pound Sterling was the world’s leading currency. The US boasted the largest economy, but the UK had established itself at the heart of global economics throughout the rise and fall of the British Empire.

The USA became the lender of choice for allied nations embroiled in the First World War, with America loaning large sums of money to Britain. The US Dollar’s bailout enabled it to supplant the Pound Sterling as the global currency of choice, and it was a similar story during the Second World War – the US entered the conflict late, having acted as an arms dealer and kit supplier to allied forces in the early years. Payment in the form of gold meant that the United States ended up with most of the world’s gold reserves.

In 1944, a conference was held in Bretton Wood, New Hampshire, USA. This was attended by delegates from 44 allied countries as the war was nearing its conclusion. The event reached the conclusion that world currencies would move from being tied to gold, and instead bind themselves to the readily-available US Dollar, which itself was backed by the gold standard. The ‘Bretton Woods Agreement’ gave central banks the ability to maintain fixed exchange rates between their own currency and the US Dollar, and in return the USA could redeem its Dollars for gold on demand.

The US still boasts the world’s largest gold reserve to this day, and a large part of the reason the USD and gold have an inverse relationship is due to this connection and their safe haven statuses.

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Why did gold rise in specific currencies?

The primary cause for gold rising in value in most other currencies is that, as the US Dollar grew in demand, so it grew in value. This resulted in subdued interest from investors for many other major currencies, as well as a raft of smaller ones. Lower values for these currencies raised the price of gold in their country as the currency cannot buy the same as before.

Other factors were to blame too. For the Pound and the Euro, Brexit pressures were a deterrent against investment. For China and the Yuan, the ongoing US/China trade war was seen as too much of a risk to go against the Dollar. The Swiss Franc, a popular safe-haven currency along with the USD and the Yen, experienced overvaluation in 2018, which again pushed investors towards the Dollar, and then a variety of economic disruption and trouble in Argentina, Venezuela, Turkey, and other nations meant that their currencies were too unreliable to back, whereas the US Dollar – as their reserve currency – wasn’t.

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What next for gold?

In Dollar terms, the likely direction for gold is up in 2019. Last year was a big one for the US Dollar thanks to a combination of interest rate rises and tax cuts for the wealthiest in America. The cuts provided some additional short-term investment stateside but as these cuts wear off in 2019, and as the Federal Reserve slows down its rate rises, then the US Dollar will begin to fall back from being as untouchable as it has been in recent months.

With the US stock markets entering bear territory, having spent the final months of 2018 dropping down and making slight gains back up (correction territory), investors are beginning to realise that the stock market’s incredible run is winding up and that now is the time to diversify holdings to protect against any sizeable crashes or economic upset.

One upside for the Dollar – which could slow gold’s gains down – is the US/China trade war’s negotiation progress. There’s likely an element of bias from both sides when they speak of progress towards a deal and promising, positive talks, but it’s the sort of language that appeases investors even if there’s little substance behind it. This talk could keep a bit of shine around the USD

Some analysts are talking of a stealth rally for gold in 2019. Their argument is that minor currencies experienced a similar sharp rise in gold price in the mid-1990s before the US Dollar caught up with a major bull run in the late 1990s. As you can see from the chart below though, the Sterling price of gold rose for a while but dropped in the late 90s – as did the price in Dollars.

A stealth rally is not unimaginable in 2019, and the World Gold Council are forecasting a gold demand increase this year, but given the strength of the stock markets and the US Dollar in 2018 it’ll be hard to imagine a mass exodus from those areas into gold rather than a steady influx and a modest rise in both gold price and gold demand.

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The 72 national currencies at record gold prices are:

  • Afghan Afghani
  • Algerian Dinar
  • Angolan Kwanza
  • Argentine Peso
  • Australian Dollar
  • Azerbaijani Manat
  • Belarusian Ruble
  • Bhutanese Ngultrum
  • Botswana Pula
  • Brazilian Real
  • Brunei Dollar
  • Burundian Franc
  • Canadian Dollar
  • Chilean Peso
  • Colombian Peso
  • Congolese Franc
  • Dominican Peso
  • Egyptian Pound
  • Ethiopian Birr
  • Gambian Dalasi
  • Georgian Lari
  • Ghanaian Cedi
  • Guinean Franc
  • Haitian Gourde
  • Honduran Lempira
  • Hungarian Forint
  • Indian Rupee
  • Indonesian Rupee
  • Iranian Rial
  • Jamaican Dollar
  • Japanese Yen
  • Kazakhstani Tenge
  • Krygistan Som
  • Lesotho Loti
  • Liberian Dollar
  • Malagasy Ariary
  • Malawian Kwacha
  • Malaysian Ringgit
  • Mexican Peso
  • Mongolian Tugrik
  • Myanmar Kyat
  • Namibian Dollar
  • Nepalese Rupee
  • Nicaragua Cordoba
  • Nigerian Naira
  • North Korean Won
  • Norwegian Krone
  • Pakistani Rupee
  • Paraguayan Guarani
  • Papua New Guinea Kina
  • Russian Ruble
  • Rwandan Franc
  • Sierra Leone Leone
  • South African Rand
  • Sri Lankan Rupee
  • St Helena Pound
  • Sudanese Pound
  • Surinamese Dollar
  • Swazi Lilangeni
  • Swedish Krona
  • Syrian Pound
  • Tajikistani Somoni
  • Tanzanian Shilling
  • Tongan Pa’anga
  • Tunisian Dinar
  • Turkish Lira
  • Ugandan Shilling
  • Ukrainian Hyrvinia
  • Uruguayan Peso
  • Uzbekistan Som
  • Venezuelan Bolivar
  • Zambian Kwacha
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