Gold price in USD has no relevance to Xetra-Gold investors
News Arnulf Hinkel – 09.10.2017
Repeatedly, media reports have caused confusion among investors who own Xetra-Gold, as the stated gold prices and trends do not match the price development of the Xetra-Gold bond. For example, readers of a recent article (“How to make your money fit for the turnaround in interest rates”) printed in the biggest German tabloid Bild, may well have been encouraged in their investment decision by the newspaper’s advice to invest up to 5 per cent of their savings in Xetra-Gold. However, they are also likely to have been confused by the warning about risks related to the USD exchange rate.
The explanation for this is simple: as can be found in numerous other media reports, the author of the Bild article did not take into account the Eurozone’s monetary sovereignty. In the case of the valuation of Xetra-Gold and every other gold product denominated in EUR, it is not necessary to take into account the XAU/USD development. On the contrary, the actual performance of Xetra-Gold would be biased by the inclusion of two currencies. The reason why many media reports still compare apples and oranges today when it comes to gold price developments has historical reasons. Until some 40 years ago, the gold price was tied to the USD – gold itself has always been treated as a form of currency, and has been evaluated as such. However, the only valid measure of gold is its weight, priced in the investor’s local currency. While in the US, the weight of gold is measured in troy ounces, in Europe the gram is considered the benchmark, with the fine ounce equaling 31.1035 grams.
To correctly interpret the media’s much-reported price of XAU/USD, the following conversion is necessary:Gold in EUR per gram = (XAU in USD per troy ounce divided by 31.1035) divided by the EUR/USD exchange rate. This formula proves that the XAU/USD rate has almost no significance to investors in the Eurozone and should therefore have no impact on investment decisions.