How the USD/CAD exchange rate effects the price of Gold in Canada?

Note - If you want the quick answer/summary, scroll down to the text below that reads **** Here is the important bit to read *****

As Canadians who love investing in precious metals, we have to contend with three forces that drive the final spot price for precious metals in Canadian dollars. They are:

1. The Spot price of gold in USD
2. The conversion from USD to CAD
3. Market sentiment for each metal or category of products

Each of these impact our final buying or selling rate in Canada dollars, and this article will try to add to your understanding of how the USD/CAD exchange rate effects the final spot price for gold in Canadian dollars.

Next I will show you how ChatGPT  answered this question (which it actually did a very good job of doing), and then I will move onto showing you graphs that illustrates the effect more clearly with data that we could only get up to 2012 for this article. OPenAI (ChatGPT), only does not give any current financial data (yet), but this should soon change.

How ChatGPT answered the question of "How the USD/CAD exchange rate effects the price of Gold in Canada?"

The USD/CAD exchange rate can impact the price of gold in Canada in a few ways:

1. Currency Impact: Gold is priced in US dollars worldwide. When the USD strengthens against the CAD, the price of gold in Canadian dollars tends to increase, assuming the price of gold in USD remains constant. A stronger USD means it takes more CAD to purchase the same amount of USD-priced gold, causing the price of gold in Canada to rise.
2. Market Dynamics: Exchange rates can also influence investor behavior. If the USD strengthens against the CAD, Canadian investors may find it more expensive to buy US dollar-denominated assets, like gold. This might affect demand for gold in Canada, potentially impacting its price.
3. Global Economic Trends: Exchange rates are influenced by a range of economic factors, including interest rates, inflation, and geopolitical events. Changes in these factors can impact both the USD/CAD exchange rate and the price of gold. For instance, if the USD strengthens due to economic uncertainty, investors might flock to gold as a safe-haven asset, driving its price up in both USD and CAD terms.

These relationships can be complex and influenced by various global factors, so while the USD/CAD exchange rate is a factor, it's just one among many that can affect the price of gold in Canada.

Lets now visualize the effect of the USD/CAD exchange rate on the price of Gold in Canada

Again using OpenAI, over a period of several questions the following graphs clearly demonstrate what happens to the spot price of gold when major shifts in USD or CAD occur. OpenAI does not have current data after 2012, but these charts will suffice in showing the effect.

The first graph below shows the spot prices for gold from 2007 to 2012. The yellow line is the spot price of gold in USD, and the green line is the spot price of gold in Canadian dollars.

The second graph is the USD/CAD exchange rate over the same period.

**** Here is the important bit to read *****

In simple terms, when Canadian dollars are weaker against US dollars, we as Canadians get more Canadian dollars for our precious metals. The inverse is also true that when Canadian dollars are stronger against US dollars, we as Canadians get less Canadian dollars for our precious metals.

In late 2008, the Canadian dollar went from being at par with the US dollar and shot up to around $1.30 CAD to $1 USD. This can be seen in the second graph with the purple line. And when this happened, you can see that the spot price for gold in Canadian dollars also shot up (see the first graph at the same time - see red arrows), and we Canadians got more Canadian dollars for our gold.

The opposite effect also occurred in mid 2011, when the Canadian dollar had more value than US dollars (see purple arrows in the second graph), you can clearly see that the yellow line for US gold lifted higher than the Canadian gold spot price for that same period.