Gold Surged as the Dollar Climbed: Biggest Move in a Year!

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.

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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?

Please give Bullion Star a look. For proper disclosure, I do have an affiliate relationship. It does not affect the price you pay but it helps me a tiny bit. The above link contains my affiliate code. At Bullion Star, you can buy grams of gold and silver as well as ounces.

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.