Gold in the hands of the US dollar

The last 2 months has been extremely painful for those who invested in gold with the precious metal plummeting more than $100 and at the time of writing this article the price is sitting below the critical $1200 level.

With all of the uncertainties surrounding Brexit, as well as the currency crisis in Turkey amongst other things, gold should have been performing much better, particularly as a safehaven so what is keeping a lid on any rally at the moment?

I guess if we look at one factor and one historical correlation then we can conclude that the US dollar is currently the cause of gold’s woes at the moment.

As history shows, when the US dollar strengthens, gold suffers and that is particularly true this time around in most part because the US Federal Reserve is currently in the midst of an aggressive rate hiking cycle which is luring investors who are chasing higher returns.

Let us not forget that gold is only an investment for investors chasing capital gains where the US dollar also has the added benefit of returning a yield as well.

So coming back to the original question about what will it take to trigger a rally in gold, it seems like a pullback in the US dollar may be its only hope.

But with the US economy powering ahead and the Fed rate cycle well on track that likelihood of that happening anytime soon maybe wishful thinking at best.


Analyst

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