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Transforming the relationship between gold and the dollar from negative to positive

By Samir Al Khoury,

It seems that the correlation factor between gold and the US dollar has become somewhat positive recently, completely contrary to what we are used to, as we have always witnessed an inverse relationship between them. We are currently witnessing clearly the strength of these two assets due to several factors, some of them common and others different.

The common factor is that the two assets are considered a safe haven against risks and geopolitical developments in the Middle East and the possibility of expanding war, which increases the attractiveness of these two assets and investors resort to them.

As for the various factors, the strength of gold results from the following reasons, for example but not limited to:

  • The continuation of large purchases by global central banks, led by the People’s Bank of China

  • Increased demand by Chinese consumers as a hedge against the economic risks that China is witnessing, especially with regard to the crisis in the real estate sector, which is still turbulent, and there is fear that it will spread to other sectors.

  • A hedge against high inflation, especially US inflation, which recorded 3.5% in March 2024

  • Markets expect that US interest rates will be reduced twice this year, which will give positive momentum to the yellow metal, which does not generate any return for investors. The lower interest rates become, the more attractive gold becomes.

Goldman Sachs raised its forecast for gold prices by the end of this year to $2,700, partly driven by expectations of interest rate cuts by the Federal Reserve.

As for the factors that support the US dollar, the most prominent are:

  • Most US economic data exceeded analysts’ expectations, such as the manufacturing purchasing managers’ indexes issued by the Institute for Supply Management (ISM), the non-farm payrolls report (NFP), the unemployment rate, headline and core consumer prices, in addition to retail sales.

  • Reducing market bets on US interest rate cuts, as the possibility of a rate cut is currently being priced twice this year after it was priced about seven times at the beginning of this year, contrasting with the expectations of Federal Reserve members or the dot plot that indicated a three-time rate cut.

  • Cautious statements by some Fed members, hinting that interest rates will remain high for a longer period of time, in addition to Fed Chairman Jerome Powell’s statement about his no need to rush to lower interest rates.

Gold continues its upward path, as it recorded $2,431 on Friday, April 12, 2024, which is a new record level. It is currently trading near the $2,370 levels, and it appears that the positive momentum will continue in the next stage, as gold has risen by about 23% since the bottom of February 14, 2024, when it recorded $1,984, to the peak it recorded on Friday, April 12, which reached $2,431.

The dollar index also continues its upward path, as it recorded 106.43 points today, which is its highest level since November 2, 2023 and it appears that the positive momentum is continuing in the next stage, as the dollar index has risen by about 5% since the bottom of January 2, 2024, where it recorded 101.34 points to the peak it recorded today, which amounted to 106.43 points.

It seems that technical indicators may support both the US dollar index and gold prices in the next stage for several reasons:

First: The regularity of the 20-, 50-, and 200-day moving averages and their upward trend, as the 20-day average exceeds the 50-day average, and the 50-day average exceeds the 200-day average.

Second: The Relative Strength Index (RSI), which is currently recording levels above 70 points, meaning that it is in the overbought area, which indicates the upward momentum for the two assets.

Third: The MACD indicator is in blue, which exceeds the orange SIGNAL LINE and is also in the positive zone, which gives positive momentum to the yellow metal.

Please note that this analysis is provided for informational purposes only and should not be considered as investment advice.

Taurex is the trading name of Zenfinex Global Limited, Stochastic Africa SL Ltd, Zenfinex Global LLC, and Zenfinex Limited.

Zenfinex Global Limited is registered in the Republic of Seychelles with registration number: 8428731-1 and is regulated by the Financial Services Authority of Seychelles (license number SD092). Its registered office address is F20, 1st Floor, Eden Plaza, Eden Island, Seychelles.

Stochastic Africa (SL) Limited is a company registered in Sierra Leone with Company Number: SL270319STOCH05271 and is licensed by the Bank of Sierra Leone under license number BSL/SAL/2023 and with the registered office at 148D Wilkinson Road, Freetown, Sierra Leone.

Zenfinex Global LLC is a company registered with the Financial Services Authority in Saint Vincent and the Grenadines under registered number 138 LLC 2019. Its registered office is Hinds Building, Kingstown, Saint Vincent, and the Grenadines.

Zenfinex Limited is a company registered in England and Wales under registered number: 11077380. Authorised and regulated by the Financial Conduct Authority under firm reference number 816055. Its registered office is 4th Floor, 4 Eastcheap, London, EC3M 1AE, United Kingdom.

*All trading involves risk.


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