GOLD

Is a Strong Dollar Trouble for Gold?

Vedran Vuk

The common wisdom that a strong dollar means weaker gold prices isn’t strictly true. Sometimes, when the dollar strengthens, gold will fall. Other times it will stay flat or can even rise; and investors need to understand the gold-dollar relationship in precise terms, not general ones.

A chart of gold and the USD/EUR over the past six months shows that gold has been falling as the dollar has been gaining against its primary competitor, the euro, and the percentage gain for the dollar is nearly the same as the decline in gold, just under 10%. But the seemingly inverse correlation is far from perfect.

While the dollar does influence gold prices, it is not the sole determinant of gold’s value, and a strong dollar doesn't mean the end of the world for gold.
If the dollar continues strengthening, gold investors might be concerned, but nonetheless, as the data shows, gold and the US dollar are not the perfect inverse of each other.

Furthermore, there is a possibility of gold becoming less negatively correlated to the dollar. Even without the statistics, this is apparent. After all, the dollar has already strengthened, and gold is still holding up well. Has it been roaring to new heights as it did in years past? Not lately; but it hasn't been beaten into the ground either – and there's a lot more of the gold story yet to play out.

source: Casey Research