The relation?

Question

hi i need someone professional to help,what is the relation between the oil&gold& the relation between them and the other metals,also the relation with inflation and unemployment rate.the second question is the relation between the currency and the interest rate, inflation,unemployment&spending& how the interest rate reflects on the currency and the stock and bond market.

Answer 1

Oil and gold prices are determined by offer and demand. Their prices are not stricly related, as the main producers are in different parts of the world. However, their demands *are* correlated, as developed growing economies need both (as well as other metals). Furthermore, surprisingly, there is some correlation between the offer of oil and the demand for gold. The producing countries convert some of their earning into gold.

The relation of commodity prices and inflation is obvious: if the former are more expensive then sooner or later this will end up in the prices of the goods produced, hence give rise to more inflation.

The relation with unemployment is less obvious. More inflation mean higher salaries, which might mean more lay-offs. However, higher inflation is often related with an expanding economy, hence less unemployment. Gold is considered a hedge against inflation, which means that gold rises with inflation.

Currency and interest rate. When the latter goes up with the threat of inflation it becomes more interesting to hold that currency, meaning it goes up. Unless the interest rate is *lower* than inflation, which happened in the seventies. If a currency goes up, this is bad for exports, which in turn is bad for unemployment.

Stock and bonds are correlated strongly. Higher interest rates means that bonds become less expensive and more interesting to hold. This pushes down stock prices, when people sell stocks to get the cash to buy bonds.

Answer 2

The answers to your questions are lengthy and complex. I suggest that you look into this and similar web sites:
http://www.econlib.org/

Good luck.