First, it shows the asymmetric, dynamic and nonlinear effects of exchange rates on the price of gold in the short term, with no effect over the long term. When central banks buy gold, it affects the supply and demand of the local currency and can lead to inflation. This is largely due to the fact that banks rely on printing more money to buy gold, creating an oversupply of fiat currency. This study examines the relationship between the exchange rate and the price of gold in Malaysia
.
The autoregressive distributed lag (ARDL) approach shows that there is a long-term relationship between the exchange rate and its determinants, including the price of gold. A rise in the price of gold will lead to a depreciation of the US dollar. There is a negative relationship between the exchange rate and the price of gold. It was found that the price of gold has a significant effect on the exchange rate in the short term
.
The decompositions of the generalized forecast error variance show that changes in the price of gold influence the forecast error variance of exchange rate changes. There is a connection between the gold market and the exchange rate market. The paper money had to be backed by an equal amount of gold in their reserves (then as now, countries kept stocks of gold bars ready). While there is undoubtedly a connection between the price of gold and the value of a fiat currency, it is not always an inverse relationship, as many people assume
.
The short-term elasticity function of the ARDL approach shows the dynamic relationship between gold price and exchange rate by estimating an error correction model. Various reasons have motivated us to find out the relationship between the price of gold and the exchange rate for the above period. We selected the appropriate bivariate copula and examined the joint distribution of gold prices and the exchange rate. Against this background, gold price volatility has both a direct and indirect impact on the macroeconomic fundamentals of the
economy.
Section 4 examines the measures of the relationship and bivariate distribution of gold price and exchange rate by choosing the appropriate copula. The volatility of gold prices is a major problem for policymakers and the government in maintaining the balance of payments (BOP) and the foreign exchange reserve. An increase in the price of gold will have an impact on India’s current account deficit (CAD) and the depreciation of the rupee. Similarly, exchange rate volatility affects gold prices for importing countries
such as India.
In other words, a rise in the price of gold can result in a trade surplus or help offset a trade deficit.
