The Influence of Gold Prices Increase against the Depreciation of US Dollar (and the Euro, Pound, and Yen)

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Acknowledgement

I would like to sincerely thank my friends, family and colleagues for the endless understanding, guidance and patience, and most importantly, the support and friendship during my studies. The mentorship of these people has been paramount in facilitating me a well-formed experience which has always provided unswerving guide in achieving my goals. They encouraged me to go further with all my projects and helped me groom into an independent thinker and a good student.

Abstract

The research objective of this thesis is to examine whether there is correlation between the appreciation of gold price denominated in U.S. dollar with the depreciation of U.S. dollar against other currencies (Euro, Pound, and Yen). Moreover, it also will be tested whether the same is true of the Euro, GBP, and Yen. By knowing the correlations between elements at once in a portfolio then further information can be used in subsequent studies to calculate the risk at the portfolio level.

Table of Contents

ACKNOWLEDGEMENTII

ABSTRACTIII

CHAPTER 1: INTRODUCTION1

Background of the study1

Problem Statement2

Aims and Objectives3

Electronic Database Searches7

Theoretical Frame work7

Chapter I: Introduction7

Chapter II: Review of Literature7

Chapter III: Methodology7

Chapter IV: Critical Analysis and Discussion8

Chapter V: Conclusion8

CHPTER 2: LITERATURE REVIEW9

Background9

Influence of Gold prices on Currency10

CHAPTER 3: METHODOLOGY25

Research Design25

Research Approach25

Type of Data26

CHAPTER 4: DISCUSSION AND ANALYSIS27

Discussion33

CHAPTER 5: CONCLUSION40

REFERENCESS46

CHAPTER 1: INTRODUCTION

Background of the study

Charles de Gaulle once said, “There can be no other criterion, no other standard than gold. Yes, gold which never changes, which can be shaped into ingots, bars, coins, which has no nationality and which is externally and universally accepted as the unalterable fiduciary value par excellence” (Vickers, 2012: 41-44). With these famous words, prompted and perhaps written by his adviser Jaques Rueff, de Gaulle summarized both a long-held view of gold and many of the reasons for that view being held. It is durable, divisible, and, for many years over a large part of the world, was indeed the ultimate standard of value. Not only that, it was a standard which held steady its purchasing power in terms of goods over a very long period of years (although there were short-term, occasionally quite substantial, fluctuations). (Pakravan, 2011: 79-81)

Looking at the entire period for which data on the gold price are available is, however, highly likely to be misleading. For there was part way through that data period (mid 90's) a very substantial change in the prices. For many years gold was, if not money, the basis of the monetary system; then that ceased, and it became a commodity like any other. It is useful to explain briefly why gold was inevitably a valuable resource when it was the basis of the monetary system, as understanding that is crucial to our choice of data period; and then to consider why gold may have remained a hedge even when these circumstances changed.

Having gold as money, or as the basis of the monetary system, meant linking a currency to gold at a fixed ...