Gold and Dollar at the hands of US presidency and the Fed
Gold and US dollar are safest resort to which investors use to hedge their funds against market fluctuations. While they do the same job, there is a strong negative correlation between.
The history of this relation is back to Bretton Woods agreements, which was signed by US, UK, and other 44 countries to govern monetary policy among them through conversion of these nations’ currencies into gold or US dollar for facilitating world trade.
In some case, this correlation sometimes turns positive, and this is pretty clear at the times of sever turmoil and sharp fluctuations in financial markets because of global crises like wars, pandemics, trade tensions. The last few years witnessed a number of crises as world economy was hard hit by USA-China trade war, COVID19, and Russian invasion to Ukraine.
In spite of such crises, the negative correlation between the precious metal and the greenback is the prevailing one.
Gold outlook
In the light of latest developments of monetary policy approach currently adopted by Federal Reserve, the US dollar weakness is expected to continue and this is one of the factors which draws rosy outlook for gold prices due to the negative correlation between them.
Recently announced Chinese stimulus package is another reason for potential gold spiks on the long term. China is the biggest consumer of gold in the world and this makes any improvement in the second largest economy in the world should be positively reflected on gold price action.???
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In the bigger picture, tensions in the Middle East and Fed’s monetary policy approach – Quantitative Easing – is are expected to provide a strong push to gold in the uptrend as rate cuts started by FOMC in September meeting suggests more weakness for the greenback.?? ??
On the other hand, if “soft landing” scenario persists, as reflected in US jobs data for September, we may see some dollar strength.
There is also US presidential elections which will gave an important role in shaping gold price action. Regardless who the winner would be, the dollar is expected to dive down.
If Kamala Harris wins the elections, her economic policies – low tariffs and high taxes – are suggested to drag the greenback down.
On the other hand, there is Donald Trump and his overt attack on the Fed and his voiced opposition to strong dollar.
In both cases, the expected weakness of the currency would fuel gold surge throughout the coming couple of years at least.
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