The value of the dollar relative to the value of gold. As the dollar loses value, gold gains value. Why is this the case?
In: Economics
Gold is valued because it is unchanging. There’s a very finite amount of it on Earth and it doesn’t decompose or corrode. That makes the value of gold rather predictable and stable.
The dollar is tied to the economy. In times of prosperity, the economy thrives. There’s a lot of money to be made of all the industriousness. In times of trouble, the economy can lose you a lot of money as uncertainty strikes.
That means that when things are going well, gold really isn’t all that interesting. You’re better off investing your money in the economy to profit off of everything that’s going on.
But when disaster strikes, war breaks out or something else goes wrong, the economy becomes a very uncertain bet. And investors don’t like uncertainty. When the economy looks scary to invest in, gold starts to look much better. It won’t earn you much money but it won’t devalue your money as the economy tanks either.
So the dollar doesn’t really have an inverse relationship with the value of gold. Gold has an inverse relationship with the state of the economy. And the dollar is tied to that same state of the economy.
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