Gold relationship with greenback is shifting as gold market is moving to Asia

As the gold market’s moving to Asia, the precios metal’s relationship with the greenback will never be the same.

The World Gold Council said in a report issued Thursday gold’s GCJ5 relationship with the dollar DXY is “complex” saying that relationship is set to “diminish” as the market shifts to Asia.

Gold’s fluctuations are sometimes linked to the dollar, with the metal often trading inversely to the greenback's direction. However, “while the fact that the gold price is quoted in U.S. dollars gets a lot of attention, its relevance is overstated,” said Juan Carlos Artigas, director of investment research at the World Gold Council.

“Changes in global markets and the structure of the gold market should soften the dollar’s influence on gold in the long run,” said Artigas.

Particularly, he speaks about the rise of Asia as a trading hub for gold. Although the Western markets were traditionally at the center of trade, “in recent years, we have seen increased interest in trading hubs in the East,” including the establishment of the Shanghai Gold Exchange, the Singapore Gold Exchange as well as Asian-tailored product launches by the CME CME in Hong Kong, he said.

Outside of the U.S., gold has no clear-cut link to dollar movements, with Chinese demand having been as likely to rise when the dollar strengthens as it has been when it weakens, Artigas said in the report.

Gold is also likely to see more transactions being settled in nondollar currencies as the gold market “becomes less a spoke-and-wheel model ... and more a regional web-like exchange structure,” he said.

In 2013, for instance, Asian markets made up close to 80% of global physical gold demand.

But turning to East from West won’t completely cut off the link between the precious metal and the US dollar, with the latter still playing a key role, even if the world shifts from a single reserve currency to a multicurrency system, said Artigas.

“The U.S. is the third-largest individual country ranked by consumer/investor demand [and it has] a thriving financial sector where many gold transactions are performed.”