Strong Correlation Between AUD and Gold

Money Management, Milana Pokrajac

Although gold demand is currently at unprecedented levels, many investors do not realize that a historical relationship exists between the price of gold bullion and the Australian dollar, according to BetaShares' Drew Corbett.

BetaShares analysis has found that the rise of the Australian dollar has eliminated much of the benefit of the rising value of gold (which is priced in USDs) with this strong correlation impacting un-hedged gold exposures.

"By analyzing the movements in the gold spot price and the AUD/USD exchange rate we have found that, generally speaking, over the last three decades, when the price of gold bullion has risen, so too has the Australian dollar relative to the U.S. dollar," Corbett said.

"Gold is widely regarded as a currency in its own right and thus, during times of USD weakness, gold often increases in value as many investors choose to own gold rather than USDs," he said.

Similarly, the Australian dollar was also likely to strengthen during times of USD weakness, according to Corbett.

"Australia's role as a major producer of gold and other commodities means the Australian dollar is seen globally as a 'commodity currency.'"

BetaShares analysis had also found that while spot gold prices surged 74% in the period from December 2008 through to end of May 2011, un-hedged spot gold returned only 14%.