Australian gold watchers would have gotten a giddy little thrill as the price per ounce passed the magical $1900 mark: here’s why it happened.

Earlier this week, shortly after the RBA’s decision to cut rates, the price of gold passed the $1900/oz mark in the local currency.


Chart from ABC Bullion

There were two key things which caused the gold price to go up this week — global instability and ongoing currency weakness against the US dollar.

Global instability

As we write about quite often here on Star Investing, macro themes have had a huge effect on the value of minerals all over the world.

Ongoing economic (and otherwise) sabre-rattling between the US and China spooked investors.

READ: Why Donald Trump is the gold sector’s best friend

Gold is typically seen as a ‘safe haven’ investment, which means that when times are turbulent and global trade is threatened, people will pile into gold.

A weakened Australian dollar

When the RBA cut rates earlier this week, it did so because it saw weakness in the Australian economy.

International currency traders have also seen weakness in the Australian economy, and over the past year have been voting with their sell orders.

The AUD against the greenback has been on a downward trajectory for a while, but this year it’s gathered pace to the point where at the last check the Aussie dollar was buying about 70 cents US.

While that’s a recovery in the shorter term, it still means that one Australian dollar will buy less gold for its buck, which is why the value of gold is worth more in AUD.

 

This content does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.