As you know, in international financial markets, the price of gold is traded in US dollars. Mints also buy gold raw materials in dollars and mint coins from it, as well as bars of small weight units (most often up to 100 grams). Investors in the Eurozone buy and sell precious metal investment products at stationary outlets or online in euros.
It also makes sense for Eurozone investors to continually evaluate the value of their gold holdings in euros, as they do, for example, with real estate, stocks and bonds.
In the portfolios of banks and brokers in the Eurozone, international equities, such as those from the US, are usually also shown and valued in euros. In Germany, it would never occur to anyone to convert their Adidas, Siemens or Allianz shares into US dollars.
Estimating the price of gold in euros is also legal for German investors since they pay most of their bills in euros. Therefore, it makes sense to calculate your income, as well as assets in euros. If you look at the indicators of the yellow precious metal in the balance of assets in the single European currency, they are clearly more positive than in US dollars. Prices are still at arm's length from all-time highs.
In euros, this distance is currently 145 euros or 7.7%. On the other hand, in US dollars, the price of gold is already down $250 or 12.1% from its all-time high.
The reason for this discrepancy is a simple strengthening of the US dollar against the euro. So the difference in returns in favor of euro-gold versus dollar gold is purely currency-related, but that doesn't change anything in the end. Moreover, the rates of inflation, that is, the development of the purchasing power of the euro and the US dollar, are quite close to each other. In the Eurozone, the inflation rate of 7.4% is even slightly lower than in the US with 8.3%. Therefore, in terms of purchasing power, the euro is even somewhat more stable than the dollar.
The strengthening of the US dollar is the reason for the relative weakness of the price of gold in US dollars. During a crisis, the world's reserve currency is still considered a "safe-haven currency". Moreover, the US Federal Reserve is pursuing a tighter monetary policy than, for example, the European Central Bank (ECB), the Bank of Japan (BOJ) or the Swiss National Bank (SNB).
As a result of the recent hike in US interest rates, which is still ongoing, the US dollar looks more attractive to many private and institutional investors and appreciates against currencies with looser monetary policy.
If you look at the dynamics of prices in various currencies, it immediately becomes obvious that the price of gold in US dollars has the worst performance. In other currencies, such as the Japanese yen or the British pound sterling, the price of gold has clearly risen by double digits over the year, while in US dollars it is now even down slightly.
Turkey's high inflation, lately at 69.97% year-on-year, is causing severe erosion of the foreign value of the lira. Turkish investors could offset this loss in external value and purchasing power of their national currency with gold. Of course, they could just buy the US dollar.
But gold also protects against risks in the financial system and a slowdown in the US economy. Therefore, it makes sense to prefer gold as a currency metal to protect against domestic inflation and devaluation of one's own currency against the US dollar, since at the same time other risks affecting the US and therefore the dollar zone can be hedged.
After all, most economic and geopolitical risks today are international phenomena such as disrupted supply chains, record levels of debt, and mounting sanctions between West and East (primarily between the US, Russia, China and vice versa).
Investors must necessarily take into account the currency effect when developing the structure of assets (diversification). In German euro-denominated portfolios, gold continues to contribute positively to returns this year. Compared to stocks and bonds with longer maturities (10-30 years), the yield advantage of gold is significant. In US portfolios, the difference in returns is much smaller, but still, since the beginning of the year, gold has held up better than stocks, long-term bonds and cryptocurrencies, even in US dollars.