The USD-GOLD relationship

One of my members asked me to look at the USD-GOLD relationship and below you can see the long term analyses using the monthly chart since 1980. What this shows is that gold and the US dollar clearly have an inverse relationship most of the time (green and red boxes): when the USD is up, GOLD is down and vice versa. This relationship is of course not too difficult to explain: Cont’d below.

USD-GOLD relationship

  • A falling dollar increases the value of other countries’ currencies. This increases the demand for commodities including gold. It also increases the prices.
  • When the U.S. dollar starts to lose its value, investors look for alternative investment sources to store value. Gold is an alternative.

The orange boxes show the opposite or no relationship, This can occur because of a crisis in some other country or region. This would cause investors to flock to safer assets at the same time: the U.S. dollar and gold.

With that knowledge, and knowing GOLD is now in a longer term Bullish cycle, see here, we should expect the USD to continue to drop further. Just like the FED likes it.