Gold and the US dollar are not as inversely correlated as widely believed. Sometimes gold and the dollar move strongly in the same direction, like now. Let’s discuss why.
On a short term basis gold and the dollar are usually inversely related, but much of the time the moves seem random.
The blue arrows above show times when gold and the dollar have moved in the same direction.
Gold’s strongest move in over a year started in March with the US dollar index generally moving higher.
Longer term charts show the same thing.
Gold vs the US Dollar Index Since 2003
With the US dollar Index at 90, gold has been at $380, $1000, $1130, and $1900.
The last time I posted this chart, a reader commented “That’s not the dollar, it’s the dollar index. The dollar is buying less and less.”
He failed to note that gold fell from $850 to $250 between 1980 and 2000 with the dollar buying less and less every step of the way. So it’s not a purchasing power thing either.
The best explanation for the price of gold has historically been, and still remains, faith in central banks.
Gold vs Faith in Central Banks
Faith in central banks is highest in long periods of disinflation, when the rate of inflation is generally decreasing. This is what happened between 1980 and 2000.
The dollar was buying less and less, but there was widespread belief that Alan Greenspan, “The Maestro” had things under control.
The “Great Moderation” was followed by the housing bubble, the Great Recession, and a near meltdown in the EU culminating when then ECB head Mario Draghi gave his famous “whatever it takes” speech.
“Within our mandate the ECB will do whatever it takes to preserve the Euro and believe me it will be enough,” said Draghi.
Q: What did Draghi do?
A: Nothing
Yes, nothing. The speech itself was enough. Traders backed off anti-euro and eurozone breakup bets following Draghi’s speech.
What’s Going On Now?
I believe it is increasingly clear the Fed does not have things under control. And neither does Biden, or Congress.
The US is not even in recession but treasury issuance is soaring.
Cumulative Issuance
- From 2013-2019 the total amount of treasuries outstanding rose from $11.854 trillion to $16.663 trillion. That’s an increase of $4.809 trillion in six years.
- From 2019-2023 the total amount of treasuries outstanding rose from $16.673 trillion to $26.366 trillion. That’s an increase of $9.693 trillion in four years.
Biden wants more money for Israel and Ukraine. It’s fiscal madness.
For discussion, please see How Much Treasury Issuance Does the US Add Every Month to Finance Debt?
Democrats want more money for social programs and Republicans wants more for defense. The compromise has always been both.
California’s Deficit Is $222 Billion and the State is $1.6 Trillion in Debt
In la-la land, California’s Deficit Is $222 Billion and the State is $1.6 Trillion in Debt
I can guarantee you right now Biden will want to bail them out.
Expect a Financial Crisis in Europe
Across the ocean, Expect a Financial Crisis in Europe With France at the Epicenter
The EU never enforced its Growth and Stability Pact or Maastricht Treaty rules. The crisis is coming to a head with France and Italy in the spotlight.
France and Italy are major disasters right now on the budget deficit rule. France has a budget deficit of 7 percent and Italy 5 percent.
France needs to reduce its deficit by a whopping 4 percent of GDP!
Don’t expect ECB president Christine Lagarde to come to the rescue with a do-nothing speech.
Q&A on the Dollar and Gold
Q: Why is the dollar rising?
A: The market has taken back rate cuts it had penciled in. But the market still expects the ECB will cut. On a relative basis this benefits the dollar.
Q: Why is gold rising anyway?
A: Faith that the Fed has things under control is waning.
Related Posts
- February 22, 2024: Within 10 Years, Interest and Medicare Will Each Cost $1.6 Trillion a Year
- September 7, 2023: Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
Millennials Rush to Buy $2,300 Gold Bars at Costco
Costco periodically offers one ounce gold bars. They sell out immediately, scarfed up by millennials. Looking for other sources? I have one.
On April 5, I noted Millennials Rush to Buy $2,300 Gold Bars at Costco
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
That’s the message of gold. Bitcoin advocates would say Bitcoin as well.
Looking for another place to buy gold from a reputable dearer?
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Would You Like to Earn Interest, Paid in Gold, Not Fiat Currency?
For those interested in earning interest on gold, paid in gold, please see Would You Like to Earn Interest, Paid in Gold, Not Fiat Currency?
If you are interested in trading gold or energy futures, you might wish to give Phil Flynn, @EnergyPhilFlynn at the Pricegroup a call.
That’s a courtesy link. I have no formal relationship, but I have known Phil for a long time.
Your stated, “The best explanation for the price of gold has historically been, and still remains, faith in central banks.”
NO, the reason is the lack of confidence in GOVT. The Fed does not approve spending, and they recently warned of the UNSUSTAINABLE path, which we know is obvious, but the Fed never criticizes the Govt (or other CB’s) – except during the Korean War.
As Armstrong has been saying for years, when the SHTF, the dollar, gold, and blue chip stocks will all rise together.
Yes the EU is dysfunctional, but never forget that Germany France and Italy own sizeable gold stashes, and now Poland too – this is own, have to hold , and not like the US 8000 tonnes which may or may not be there.
Is the dollar index really the best measure of the dollar? The euro is the largest component so if it loses value at the same time, wouldn’t the dollar index be flat?
Economic news out of China is in rollercoaster phase.
Exports YoY Fell -7.5% reported april 12
Rose 7.1% mar 06
Rose 2.3% jan 11
Rose .5% dec 06
Fell -6.2% nov 06
Debt fueled China economy is falling apart.
Export reliant economies such as Europe faltering as demand for product weakens
War possibility rises in middle east
That Gold and USD continue to rally suggests strongly that economic uncertainty if not chaos is taking hold across globe. Safe haven flows driving rally is appropriate read on situation.
Tell me , are Western economies NOT debt fueled then , the EU , Japan , US of A in particular ? WHAT exactly is the US of A exporting these days, apart from arms for their proxy war in Whorekraine ,? Paid for by the very fckn US on top of that ….LOL ….Fckn IDIOTS ….Your corrupt political bastards and elitarian cronies doing great of course …
So explain to me with your Ace analysis where are you going to go to protect any wealth you possess when SHTF?
What’s her name running ECB going to help you out. Hey how about that pillar of currency strength BOJ. Or maybe China cause it’s up and coming. Seems they have a little problemo there as truckers are blowing up police stations.
Of course theer’s always el British Pound cept old Gordy Brown sold off most their Gold when he could right at bottom of market.
How bout Canada. Hide out there in some snowbank while Trudope parades around.
Seems USD as fucked to high heaven Washington has become still has instant liquidity to park money at when storms come.
All I know is that these are very weird and dangerous times, no printed fiat will keep the mess afloat when the shtf….I think …but wtf am I , …Good luck anyway ! We all gonna need some, rather sooner than later …
The only thing people can do is position yourself by where you live.
By choice I can walk to saltwater and go fishing. I can go out in my backyard and pick produce to eat. Hospital 1/4 mile away. County I live in has no such bullshit like defund police. Some of highest paid police forces in Nation.
Nothing is impregnable, but barring a direct nuclear strike will be riding out the crazies safe and snug with a stack of firewood piled up outside.
Been living here long enough I know who my mechanic that works on my truck is. I know where my physician is. I know my electrician, my plumber. I’ve Networked locally and know who is dependable and who can be trusted.
Living without roots is not my style. People I know also know me and in community there is strength.
This has been coming a Long time and now it is here.
That is only advice as model I can offer as a way to deal with all the uncertainty.
Good Luck to you as well.
havin had a rather pleasant life and being 60+, I am definitely NOT going to isolate and prep for the the bad times …ONE single bullet will take care of ‘everything’ when needed….of that I am sure ….
Myself I have zero trust in cities.
Outlier areas were the people still have a work ethic, and their faith is not in money but in their own abilities to deal with Life.
That is Bedrock I am willing to stand upon. it will not shift or run.
Money is just a piece of paper that is used as a tool, other then that it is useless.
Mr. Market is a voting machine in the short term. In the long term Mr. Market is a weighing machine. The crowd voted for the safety of gold, dollars, and oil.
Analog (Gold) vs Digital (Bitcoin/CBDC)
Maybe the leading story of the 21st century.
Central Bank and Costco purchases of gold can not be the whole story to the sudden gold price increase.
A gold backed currency to restore confidence, given the certain demise of Fiat, finally to arrive? I have a hard time believing that Bitcoin/CBDC can give confidence to any currency. The only hope to avoid stagflation is gold.
The Federal Reserve…In their own words:
💥 BREAKING! 💰 The Federal Reserve is Sabotaging America! James O’Keefe Undercover Reveals Another Scumbag! (rumble.com)
What does faith in the Central banks mean? It’s really the faith in the long term value of the dollar. If you think the dollar will lose it value over the next few years you buy gold.
I have faith in the Central banks to print money and degrade the purchasing power of money. That’s why there are central banks and legal tender laws. So the government can steel from you and not be constrained in their spending.
The system’s loss of credibility appears as the likeliest cause for the metal market blow up.
Since little to nothing has fundamentally changed elsewhere; the war in Gaza is 6 months old; the war in Ukraine is years old; The US killed Solemani; Iran bombed our Iraq bases, Israel bombs Syria weekly; Home Depot is busy; Starbucks is busy; home values are holding up; stock market is up up up; credit is available and still historically reasonable; debt just goes up up up? That’s business as usual for the US.
Where is the cataclysm that always accompanies blow ups in the metals market?
The systems dissolving credibility is the cataclysm. I’m seeing people lose faith in the fabricated narratives and the talking heads across the board. This whole illusion may unwind all the way down to Covid, Vaxes, 911 and beyond. This could be our pivotal “Rosa Park-ification” unwinding of fabricated illusions. Rupert Sheldrake would tell us “once the truth becomes possible in one place it can become possible everywhere”.
In a world where everything is fake – Gold and Silver are undeniably real.
With some Chinese, Vietnamese and other real estate faltering, gold is being offered as incentive. Gold seems less risky vis a vis real estate in some economies.
Russian, chinese central banks apparently inclined to gold relative to usd.
Gold is favorite with Indian and Middle eastern economies, the rally perpetuating, helped when oil is above certain levels ( more spare savings?).
The in tandem industrial metals (copper, etc) rally could gives more bargaining power to miners for precious metals.
Central Bank and some corporate bonds/ notes with no bottom in sight.
US fiscal borrowing aiding inflation
US real estate and stocks possibly not at a discount.
Mortgage rates possible defaults a worry for some regional banks.
Lamentatation for the Japanese Yen.
Bitcoiners may get better margins in lockstep with rising gold prices.
The ongoing wars making stock investors nervous.
Personal loans, the new NINGA debt traps.
Pointers towards gold?
Mish, your two cents on the above.
Disclamer: All personal liquid assetts only in US stocks
Foreign investor with exchange rate risk.
Substantial non liquid assets bought (RE, gold) bought 60 yrs ago. debt free. earning as yet.
The DXY is a measure of dollar against other currencies(fiat). So thats what you get. Basically comparing the Chicago Bears to the 2024 Patriots, NYGiants, Washington Commanders and NY jets. Which is the least crappy.
Probably better measure is against commodities. GOLD is killing other commodities like oil, wheat etc.
I know what the dollar index is. I am telling you what the conventional wisdom is and why it is wrong,
I also noted that gold fell between 1980 and 2000 with the dollar buying less all the way. What is it about what I just said that you fail to understand.
It might be helpful to understand why the conventional wisdom even “makes sense” to anyone (how did it get to be conventional wisdom?) given that it makes no sense to most of us here to compare gold against the dollar-exchange-rate index.
During times when the dollar strengthens (or weakens) against the euro/yen/etc, why would anyone think gold should care one way or the other?
The other conventional wisdom about gold is that it’s “an inflation hedge”, but as the charts here have shown, that’s not true either.
The central-bank-confidence theory does hold water, as does central-bank buying sprees (the opposite of Brown’s Bottom).
The other one that needs discussing is geopolitical instability. One could make a strong geopolitical case for gold today, as well as a central-bank case.
I’m not disagreeing with you Mish, just pointing to other events that probably had significance over the last 50 plus years. One is equities as measured by the SnP500 index went from near a 100 to 1400 suggesting a strong pull by the attractive stock market moves from holding gold probably assisted by declining interest rates from Volker’s peak. Second, following the great recession, NZIRP to get inflation up to the fed’s 2% target went on for years also providing a head wind for gold and tail wind for equities. Last, the exploding popularity of digital currency following the great recession potentially drew funds from gold as the DC was supposed to be its modern-day competitor/replacement. I do not think trying to link the irrelevant DXY index to gold value has any relevance, and there are circumstances that can temporarily interfere with gold’s inverse relationship to the dollar. Long term, the dollar’s value continues to head south given mismanagement by government and the fed, while gold will head north in dollar terms. One is likely better off holding wealth in tangible assets than dollar denominated assets.
3 WW
QT is a political nightmare. Massive treasury issuance is a way to combat QT and fight recessionary pressures, at long term costs of course.
Fred Hickey writing in the High Tech Strategist a couple of weeks ago points out that the US Federal debt added just in the previous 20 days equalled the total deficit in 2002.
(By the way, Grant Williams and Bill Fleckenstein had Hickey on their podcast back in 2020 where they agreed that Fred’s newsletter is, “by far and away the single greatest value for money anywhere on the planet earth” )
link to grant-williams.com
The real question should be this.. Dollar is rising against what?
here is the basket case….
Euro (EUR), 57.6% weight
Japanese yen (JPY), 13.6% weight
Pound sterling (GBP), 11.9% weight
Canadian dollar (CAD), 9.1% weight
Swedish krona (SEK), 4.2% weight
Swiss franc (CHF), 3.6% weight
Tiolet paper against other tiolet papers
“The US is not even in recession but treasury issuance is soaring.”
Corrected: The US is not in a recession BECAUSE treasury issuance is soaring.
Could it be that with all the turmoil in the world, that the US-Dollar, gold, silver, and Bitcoin, are being viewed as safe havens? Pick your flavor.
Fiat fluctuations have multiple reasons, many of them spur of the moment. Fiat can rise suddenly even while losing value on the ground. Gold does reflect a wider demand for security.
The plain fact of the matter is that the dollar should not be moving higher here at all.
Higher-than-expected inflation leads to a move higher in the dollar?
That is counter-intuitive on its face.
The dollar is only moving “higher” (losing its value slightly more slowly) versus other increasingly worthless fiat currencies of hopelessly over-indebted governments/countries.
The dollar may still be “the prettiest girl in the whorehouse”, but the gold price is telling us that they are all quite old and ugly and will soon be out of business.
The Dollar is rising simply because it is used as a Denominator of Debt the world over.
No longer true.
Numerous very important countries are in the process of de-dollarizing.
plus a higher rate pays a higher return on the “savings” in the future. The “rate ” should reflect the devaluation (inflation) risk
The other reason its moving higher is demand.
Despite your claim that important countries are ‘de-dollarizing’, it’s clear that plenty of countries are not. The dollar is rising because of demand from other countries. The usual reason for that is ‘flight to safety’ during either financial or political crises. Since there isn’t a financial crises, I’d say it’s a political one based on the fact there are 2 powderkeg wars going on (Ukraine/Palestine) that threat to engulf a lot more countries.
Re “Higher-than-expected inflation leads to a move higher in the dollar?
That is counter-intuitive on its face.”
It’s actually very intuitive – once you get it. With the current Federal Reserve reaction function, higher inflation implies higher US interest rates, with corresponding flow to other investment yields. So savers in other nations send money here for the higher yields and that demand for dollars pushes up the exchange rate. The savers get a second boost from the currency appreciation itself.
This is rather the inverse of the Yen Carry Trade.
add to it the albeit short term perpetual machine effect of more dollars for native currency early on vis-a-vis late entrants.
Gold is rallying due to economic uncertainty in the US no matter who wins the election, but especially the possibility of Trump winning and causing total chaos as he likes to do.
Chaos? You mean like Govt Mandates n’ stuff?
Where did you get that from? is it NPR or CNN or NBC that told you… may be you are disciple of intellectuals on The View think tank. LOL.
Here is a fact that will have unpleasant reaction to your TDS…Avg. price of Gold when Trump was President was under $1300 per ounce, what is the price now? needs math but then again math is racist.. right?
Hmm, the price of gold was $1250 when trump took office and $1850 when he left. Math.
When you match CNN and think math is racist you never going to understand averages. LOL
LMAO again, thanks buddy.
LMAO
The boat finally has too many leaks in it and it’s going down faster and faster as debts rise … The big question is … which boat is going to down first the Japanese, the European or the American ….
I am heavily invested in miners, specifically Barrick Gold.
I’m a little frustrated with the lack of movement, it’s gone up, but barely.
Any thoughts on why that is? Are we waiting for confirmation of a prolonged elevated gold price?
At 400 bucks higher an ounce, and quarterly sales of 1.1 million ounces, Barrick’s earnings have just doubled, but the share price is actually LOWER than it was a year ago.
Somethings up, but not the miners.
I should have said “profits have doubled” not earnings.
The Miners are TERRIBLY MANAGED.
You need a subscription to seekingalpha
GOLD financials
2014 Revenue 10,239, Profit 3530
2023 Revenue 11,397, Profit 3465
This company was more profitable with less revenue in 2014 than 2023 despite the run up in gold!
Grades
Safety C+
Growth D+
Yield C+
Consistency C+
Even bitcoin is better than this turkey.
Bitcoin is up 262% in the last 6 months. So yes, bitcoin has done better than gold or mining stocks.
John Hathaway from Sprott says that if ETF inflows start to match what happened from 2008 to 2011, we could see another 25% added to the price of gold. Bizarrely, up until the end of March 2024, ETF holdings actually declined 12% in the previous year. Currently more than 75% of investment advisors have less than 1% exposure to gold…
Miners are hugely undervalued relative to bullion….
link to sprott.com
Apparently Barrick have just advertised their upcoming earnings release date on Kitco for the first time ever – presumably they have something to say that they’re proud of….
You have to look at Miners’ expenses as well as their revenue.
To mine gold you have labor, equipment, energy and debt expenses. All of those costs are up. Only if the gold price rises faster do profits accelerate. And only if the profit acceleration appears sustainable do share prices rise.
Toss in geopolitical uncertainty (nationalization risk of mines) which is also increasing as the prior world order unravels…