Gold's Inverse Relationship To The U.S. Dollar Looks To Be Decoupling

Feb. 23, 2020 1:20 PM ETGLD, IAU, PHYS, SGOL, BAR, GLDM, AAAU, OUNZ, QGLDX, PHYS:CA71 Comments
Bob Kirtley profile picture
Bob Kirtley
2.74K Followers

Summary

  • We have long held the view that gold's fortunes were inversely linked to the US Dollar.
  • A comparison chart clearly shows that gold is making good progress despite the US Dollar also doing very well.
  • There are signs that the global economy is slowing down so we wouldn’t be surprised to see the US reduce rates to zero before this year ends.
  • If negative rates become the norm and it costs money to hold currencies, then we would expect investors to reallocate their funds to some form of hard asset such as gold.

Introduction

We have long held the view that gold's fortunes were inversely linked to the US Dollar, as the Dollar strengthened, gold weakened and so on. Today, we will take a quick look at that relationship to ascertain if that premise still holds true.

The Gold Chart

The following is a chart of gold's progress spanning a period of 18 months which shows the value of gold rising from around the $1,200.00/Oz level to the $1,600.00/Oz. A couple of corrections have taken place along the way which always causes indigestion in the precious metals space as the well-known ‘Wall of Worry’ had to be climbed.

Last year ended well with gold rallying through December; however, at the start of this year, gold looked sluggish and seemed unable to gain any real traction. Although, it should be noted that over the last few days, gold has taken a peek above the $1,600.00/Oz level.

The US Dollar Chart

The following chart depicts the oscillations of the US Dollar over last 18 months where the ‘97’ level acted as both a resistance level and a support level. However, the Dollar has managed to rise from around the 95 level to today’s highs of 99 with a possible breach of the 100 level in the near term.

The technical indicators such as the STO, MACD and RSI are firmly in the overbought zone, suggesting that there might be a pullback in the near term. This of course is not a given as the other major currencies, such as the Euro have fallen dramatically of late, partly due to the UK's exit from the European Union which renders the future of both parties uncertain.

The Gold/Dollar Comparison Chart

This chart clearly shows that gold is making good progress despite the US Dollar also doing very

This article was written by

Bob Kirtley profile picture
2.74K Followers
Bob Kirtley has traded options and stocks since 1980. Bob Kirtley spent many years working on Oil projects including some in Alberta, such as the tar sands installations in Fort McMurray. He lived and worked in many different countries, as that is the nature of the construction business. Planning and cost control are key to a projects success and he tries to apply those disciplines on a daily basis when dealing with investments. His training in such areas as SWOT and Risk analysis can be applied from time to time. His qualifications include being chartered in the United Kingdom, which is similar to that of a Professional Engineer in Canada, along with a Masters Degree in Project Management from South Bank University, London, England. He has been working for a number of years on a full time basis representing a group of investors in England.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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