observation regarding currency and gold

Discussion in 'Economics' started by c.chugani, Aug 26, 2007.

  1. ive been studying the exchange rates of various currencies and have noticed that most benchmark currencies seem to be losing value respect to the GBP.

    pardon my ignorancy. could someone explain to me WHY and WHAT exactly is causing this? [and for whose interest]??

    for example on 1st july 2002 a british pound would equal 1.45710 USD.

    at todays date, the same pound will get you 2.01480 USD.

    in the same time frame, the purchasing power of the GBP relative to Gold has gone down.

    for example, on 1st july 2002, a GBP would get you 0.0030650 oz. of gold.

    today, the same pound will give you only 0.0014990 oz. of gold.

    if major currencies devalue in front of the GBP, and the GBP devalues in front of gold - isnt the purchasing power of most people declining? who are the winners of such a situation?

    Could someone correct me if im wrong or explain to me what has exactly happened over the last 5 years? is it the effects of inflation?
  2. sim03


    Your observations are qualitatively in line, but your data is way off.

    1 July 2002: 1.5294 GBP/USD, $312.10/oz. London fix; 0.004900 oz./£.

    24 Aug 2007: 2.0142 GBP/USD, $668.20/oz.; 0.003014 oz./£.

    In other words, gold more than doubled (up 114.10%) in dollar terms (after going nowhere for a couple of decades, mind you), while the dollar fell by 24.07% against the pound over the same period. And so one pound buys 38.5% less gold than 5 years ago.

    I wouldn't say that the pound "devalued" against gold. It's been very strong against most other currencies, but it's still only a currency... can't be expected to keep pace with a volatile, cyclical commodity in the middle of a powerful, infrequent, multi-year rising cycle.
  3. The relationship between GBP and gold is not factored into Economics.

    Who cares about GBP over gold?....other then the Queen.
  4. Ok I meant June. Not July.
    Anyways, it doesnt actually change my observation:

    USD has devalued against the pound. Pound buys less gold each time.

    Do you have data for previous periods where currency REBOUNDED and bought more gold?

    Is gold becoming scarcer and its value increasing over the decades?
  5. I purposely looked up the exchange rate between GBP/XAU. Since i wanted to see the relationship between one of the stronger currencies against the precious metal (so USD was out of the question).