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Fundamental analysis Market interconnections

Connection between Gold and the Australian Dollar

Елена Берсенева 14 march 2022 97 3

In this article, we will assess correlation between the price for gold and the rate of the Australian dollar.


Since the primitive times, gold has been viewed as the most reliable money equivalent. Gold is highly appreciated because of its “conversion” to any good or money unit. And today, investments to all types of “gold” reserves are considered as possibility of savings and money protection from inflation.

 

Gold is produced almost in 70 countries of the world.

 

According to GFMS Thomson Reuters, gold production was 3,287 tons in 2019. Geography and the structure of gold production in 2019 is represented on the following diagram.

Australia is the second-largest producing country of gold in the world after China. In 2019, the country accounts for 10% (330 tons) of the world production of this metal.

 

Australia is the third-largest gold exporter in the world. The export of the yellow metal is more than 5 billion dollars annually. The export of gold and gold products is around 50% from export of the whole country, it is therefore considered that the price correlation of the Australian dollar and gold reaches 80%.

Hypothesis
To conclusion

There is a connection between changes in the price for gold and the Australian dollar rate.

To conclusion
Data used

Historical data of quotes of the future for gold.

  • Timeframe: D1.
  • The history covers the period from December 1979 until May 2019.
  • Total: 10,266 values.


Historical data of AUDUSD quotes.

  • Timeframe: D1.
  • The history covers the period from December 1979 until May 2019.
  • Total: 10,256 values.


Analysis of Results

 

Let us estimate the connection between changes in the price of gold and the rate of AUDUSD by week for the period of 40 years using correlation coefficient:


PERIOD
GOLD/ AUDUSD
PERIOD
GOLD / AUDUSD
PERIOD
GOLD / AUDUSD
PERIOD
GOLD / AUDUSD
1 week
0.192
15 week
0.249
29 week
0.249
43 week
0.264
2 week
0.297
16 week
0.419
30 week
0.463
44 week
0.360
3 week
0.301
17 week
0.113
31 week
0.280
45 week
0.419
4 week
0.129
18 week
0.198
32 week
0.156
46 week
0.468
5 week
0.127
19 week
0.449
33 week
0.291
47 week
0.376
6 week
0.227
20 week
0.328
34 week
0.210
48 week
0.286
7 week
0.114
21 week
0.205
35 week
0.146
49 week
0.298
8 week
0.153
22 week
0.294
36 week
0.309
50 week
0.407
9 week
0.336
23 week
0.244
37 week
0.293
51 week
0.440
10 week
0.141
24 week
0.361
38 week
0.230
52 week
0.253
11 week
0.295
25 week
0.221
39 week
0.319
53 week
0.335
12 week
0.283
26 week
0.275
40 week
0.192
13 week
0.267
27 week
0.240
41 week
0.211
14 week
0.181
28 week
0.250
42 week
-0.138


Correlation coefficients between the changes in prices of gold and the rate of AUDUSD are positive for the whole period under review excluding the 42th week. A moderate positive dependency is estimated at the 19th, 30th, and 46th weeks of the year.

 

The correlation coefficient for the whole period is equal to 0.247.

Conclusion

A weak direct correlation between changes in the price for gold and the AUDUSD rate has been identified.

Detailed results are shown in the Appendix:

XLSX (0.01 MB)Application to the article 'Gold's relationship with the Australian dollar'.xlsx

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