Gold continues its dollar-defying run


Another day, another all-time high for the yellow metal; price surpasses $2,760 in Tuesday trading.

October has been a strong month for gold — and oddly enough, just as strong for the U.S. dollar. Numerous economists are starting to draw attention to the increasingly noticeable correlation between the two, which have rallied in lockstep throughout the month despite historically being negatively correlated.

The U.S. Dollar Index (DXY) has gained strength throughout the year and is close to retracing losses from a mid-year slump. The index is up 3.12% on the year and nearly 4% in October as gold also pushes to all-time highs. Gold is also up about 4% in October, continuing its near one-sided move to the upside, resulting in a $700 an ounce rise in spot prices in 2024, equaling a 34% year-to-date gain.

It’s becoming noticeable

Since May 2023, gold and the dollar have risen at remarkably similar rates.

 Gold and the trade-weighted performance of the dollar index are shown in this five-year chart. (Source: Macrotrends.net) (credit: PR)
Gold and the trade-weighted performance of the dollar index are shown in this five-year chart. (Source: Macrotrends.net) (credit: PR)

In an April report, The Street’s David Dierking drew several conclusions based on the uncharacteristic correlation, suggesting that both rallies are indicative of investors taking risk-off positions.

“I believe gold is acting as a risk-off asset right now and the dollar is acting sort of as a risk-off asset,” he wrote. “But we can unquestionably say that their correlation has turned decidedly positive as we can see with the chart above.”

So what’s it mean?

Dierking suggests the increased correlation could predict a bear market coming to equities.

“The higher the correlation between gold and the dollar, the deeper the S&P 500 correction tends to be,” he wrote. “The two times that the gold/dollar correlation went above 0.50 in recent years was just before the COVID recession and during the 2022 stock/bond bear market, the two deepest drawdowns since the financial crisis. The correlation nearly hit 0.5 in late 2018 and coincided with a 20% drawdown in the S&P 500.”

This article is for informational purposes only. The opinions and analysis herein are those of the author and are not financial advice. The Jerusalem Post (JPost.com) does not endorse or recommend any investments based on this information. Investors should consider their financial situation, investment goals, and risk tolerance before making any decisions. Consulting a qualified financial advisor is recommended. JPost.com is not liable for any investment losses from using this information. The information provided is for educational purposes only and should not be considered as trading or investment advice.
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