Friday, April 2, 2010

USD - Crude - Gold Relationship

Dollar is international currency and when the dollar is weak (eg. USD falls from iUSD=45INR to 1USD=44INR) countries would be able to purchase more quantity of oil with lesser currency...however this is only when OPEC keep the prices stable

Crude oil is mainly traded in US dollars, and when the US dollar weakens the crude oil market participants (speculators, producers, refineries, etc.) push the price of crude higher on the expectations that oil producers are entitled to at least the same prices as before in their own currencies, after exchanging US dollars into their currency. In economics such relationships are explained by Purchasing Power Parity theory.

If the US dollar goes down, crude and oil will go up. Dollar rises, oil and gold usually go down. There are also other factors, inflation, recession and crude inventory, but those are the general rules.

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