The US dollar continues to drive movements in the gold price

Thelma and Louise. Pathé Entertainment, Percy Main, Star Partners III Ltd. IMDb
  • The spot gold price has fallen to the lowest level in a year.
  • It’s fallen over 10% mid-April. Over the same period, the US dollar index has rallied 6.5%.
  • Rather than real US bond yields, movements in the US dollar remain the most influential factor over the gold price at present.

It’s been a tough few months for gold bugs.

After surging over 10% between December to April, it’s been nothing but one-way traffic for the spot gold price, giving back all of those gains, and more, over the past three months.

It currently sits at $US1,228.05, the lowest level in a year.

As seen in the daily chart below from Thomson Reuters, gold’s woes have largely been due to a sharp rally in narrow US dollar index, or DXY for short.

Thomson Reuters

The gold price, shown in yellow, has been inverted to show the relationship with movements in the DXY.

For a non-yielding asset priced in US dollars, gold has been in the wars despite growing trade tensions between the United States and China, as well as other simmering geopolitical risks.

While the inverse relationship between the gold price and DXY isn’t exactly new, Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank, says it is still somewhat unusual nonetheless.

“Gold [has fallen] to the lowest level in a year, keeping its close inverse relationship with the US dollar intact,” he says.

“That relationship has come at the expense of gold’s relationship with long-term US real yields.

“Historically, gold prices have shown a more consistent and tighter inverse correlation with 10 year real yields, but that relationship has failed to help gold prices despite a downtick in US 10-year real yields since May.”

Despite a pickup in inflation and decline in longer-dated US bond yields in recent months, something that has seen real US 10-year yields decline, that has failed to support the gold price as it has in the past.

Given the weakening in that relationship seen frequently in the past, it suggests movements in the DXY will continue drive those in the gold price.

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