Investors often use the direction of the US dollar as a bellwether for gold’s performance. However, over recent years, short-term movements in gold have been more heavily influenced by US interest rates and expectations of policy normalisation. Our analysis shows that the correlation between gold and US rates is waning and that the US dollar is again a stronger indicator of the direction of price. And, in our view, this will continue over coming months – even while the dollar won’t explain gold’s movements entirely. Furthermore, the analysis shows that higher real rates have not always resulted in negative gold returns.
There is a consistently negative correlation between gold and the US dollar
Correlation between gold (US$/oz) and the US dollar real exchange rate*
*Based on weekly returns between January 1971 and March 2018.
Source: Bloomberg, ICE Benchmark Administration, World Gold Council
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