Is the Australian dollar correlated with the price of gold?

Gold is very popular in Australia and many people believe in inventing in this precious metal. Australia is one of the safest most economically stable countries in the world and buying gold in Australia allows you be certain that you are making the best financial decision for your future. 

There are many ways you can go about buying gold in Australia. One of the best ways to invest in gold is by purchasing gold bars or coins. Gold trades are done in US dollars so you should understand the how the gold price Australia correlates with the US dollar. 

The Australian dollar is known to have a strong correlation with the price of gold.

The main reason for this is that Australia has a long history with gold mining and gold production. The rise of gold prices benefits mining companies and gold dealers across the country. It increases earnings. This is beneficial for the economy and the government because when companies make large returns they pay taxes which goes into government coffers. So the question is “How does the gold price in Australia” compare to the USD.

From early 2006 to mid-2008, the Australian dollar and the gold price made substantial some gains. The price rose from $550 to $960 managing to gain 74% in 2.5 years. During that period the Australian has outperformed the US dollar pushing the rate of exchange of AUD/USD from $0.74 to $0.97.

The main reason for this was the overall weakening of the American dollar against other major currencies.

The next time the Australian dollar and the price of gold diverged from the US dollar was at the beginning of the 2009 recession. During this period, the Reserve Bank of Australia (RBA) had repeatedly cut its interest rates in response to the challenges that the economic downturn brought along.

This divergence lasted a short while. By March of 2009 when the panic sell-off of the Australian dollar. The gold price Australia rose steadily for 2 years until 2011. This is when the AUD/USD exchange reached 1.10 for the first time in decades and the price of gold exceeded $1,890.

For 5 years, the price of precious metals faced notable corrections, with gold price dropping back to $USD 1,055 by 2016, with AUD losing ground against USD and dropping to $0.69 level.

This is the point where the second divergence between the Australian dollar and the gold price happened. The US Federal Reserve cut interest rates to 1.5% and then to 0% and finally 0.25%. Gold made gains on the back of these rate cuts.

The price of gold has risen after those rate cuts eventually rising above $1,700 by June 2020.

Has the correlation between the Australian Dollar and gold been restored?
The US rate cuts should have benefited the AUD but that didn’t happen. This is because the Reserve Bank of Australia also cut interest rates down to 0.25% affecting the AUD/USD. It brought the exchange down to $0.57 In March 2020.

Despite that, the AUD recovered a portion of its losses and returned to  $0.69 mark against the US dollar. This suggests that the correlation between the AUD and gold price might be restored. One has to consider the fact that the commodity prices aren’t the only factors influencing the Australian dollar but exchange rates play an important role as well. The currency markets are affected by a number of economic indicators.

Australia is not cutting back on its gold production. In 2019, the gold mining industry produced 325 tonnes of gold exceeding the previous all-time high. The Australian economy, its currency, and economic policy are well-positioned to benefit from the rising price of gold.