22 August 2013
1)There is an intrinsic co-relation between gold prices and the US dollar. When the demand for the US dollar falls, banks as well as investors around the world invest more in gold. This measure helps them protect their money and hedge against uncertainties. The demand, and consequently the value of gold hence increases.
2)Similarly, when the US dollar appreciates, an increasing number of investors shift their investments from gold to the US dollar. This fall in demand causes the value of gold to depreciate. This behavior of investors creates an inverse relationship between gold and the US dollar.
22 August 2013
However, it would not be appropriate to conclude that the price of gold and the US dollar always move in opposite directions, mainly because other external factors also impact the prices of these two instruments. Some people, for instance, might invest heavily in gold during a recession, whereas others might consider the US dollar to be a safer investment.
In such a situation, the value of both these options might go up.
You may refer to reasons for fall in rupee value also here
CAclubindia
