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Resources Policy 33 (2008) 118–124
The price of gold and the exchange rates: Once again
Larry A. Sjaastada,b,
aDepartment of Economics, University of Chicago, USA
代写澳大利亚论文bUWA Business School, The University of Western Australia, Australia
Abstract
This paper examines the theoretical and empirical relationships between the major exchange rates and the price of gold using
forecast error data. Among other things, it is found that, since the dissolution of the Bretton Woods international monetary system,
floating exchange rates among the major currencies have been a major source of price instability in the world gold market and, as the
world gold market now seems to be dominated by the US dollar bloc, appreciations or depreciations of that dollar would have strong
effects on the price of gold in other currencies. The results of this study are rather different from those obtained in an earlier study of the
same subject.
r 2008 Published by Elsevier Ltd.
JEL classification: D40; F33
Introduction
The main objective of this paper, as in a previous one, is
to identify the effect of major currency exchange rates on
the prices of internationally traded commodities.1 For
commodities that are traded continuously in organized
markets such as the Chicago Board of Trade, a change in
any exchange rate will result in an immediate adjustment in
the prices of those commodities in at least one currency, and
perhaps in both currencies if both countries are ‘‘large’’.
For example, when the dollar depreciates against the euro,
dollar prices of commodities tend to rise (and euro prices
fall) even though the fundamentals of the markets––all
relevant factors other than exchange rates and price
levels––remain unchanged. The power of this effect is
suggested by the events surrounding the intense appreciation
of the dollar from early 1980 until early 1985, during
which the US price level rose by 30 percent but the IMF
dollar-based commodity price index fell by 30 percent, and
dollar-based unit-value indices for both imports and
exports of commodity-exporting countries as a group
declined by 14 percent. The explanation for this anomaly
lies in exchange rates: with respect to the DM, for example,
the dollar appreciated in the same period by more than
90 percent in nominal terms, and by 45 percent in
real terms.
The potential importance of this phenomenon is not
limited to the major currency countries. With several minor
currencies of the world being directly or indirectly tied to
one of the three major currencies (the dollar, the euro, and
the yen) or a currency basket, shocks to major currency
exchange rates are felt not only by producers and
consumers of internationally traded commodities in major
currency countries, but also by many of the smaller,
commodity-exporting countries, in the form of inflationary
(or deflationary) shocks transmitted by fluctuations in the
international prices of commodities. The idea of the
Australian dollar as a ‘‘commodity currency’’ is an
example.
ARTICLE IN PRESS
www.elsevier.com/locate/resourpol
0301-4207/$ - see front matter r 2008 Published by Elsevier Ltd.
doi:10.1016/j.resourpol.2007.10.002
Corresponding author at: UWA Business School, The University of
Western Australia, Australia.
E-mail address: sjaasta@worldnet.att.net
1To avoid unnecessary rewriting, and