The Dollar’s Outlook Is Darkening—Does It Signal Brighter Days for Gold?



US dollar struggles

The US dollar has been struggling lately. Initially, the geopolitical tensions between the US and North Korea took a toll on the dollar. Typically, the dollar appreciates during a crisis, as it is considered a safe-haven asset. However, because this conflict involved the US, other safe-haven currencies such as Japanese yen and Swiss franc rallied while the dollar lagged behind.

The more-dovish-than-expected minutes from the Federal Reserve’s July meeting were released on August 16, 2017. These minutes impacted the dollar negatively.

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COT report

Another piece of evidence regarding the negativity surrounding the dollar came in the form of the latest Commitment of Traders (or COT) report, released on August 11, 2017. According to this report, large speculators and traders added to their already bearish positions on the dollar for the seventh straight week. 

According to Reuters’ calculations, the net US dollar (UUP) positions rose to -$10.2 billion compared to -$5.3 billion in the previous week. In addition to these factors, the deteriorating Trump growth agenda continues to impact the dollar negatively.

US dollar and gold

The assets denominated in the US dollar are influenced by its strength or weakness. Because gold is a dollar-denominated asset, its fortunes are also tied to the dollar among other factors. A strong dollar is negative for gold and vice versa. The weakening of the dollar typically elevates gold prices.

In our view, gold investors should also track the dollar’s direction, which can indicate the direction of gold prices (GLD). Gold prices impact equities such as Harmony Gold (HMY), Gold Fields (GFI), B2Gold (BTG), and Alamos Gold (AGI). The dollar also influences funds such as the VanEck Vectors Gold Miners ETF (GDX).


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