Gold's vs the US Dollar: Correlation Is Not What Most Think


Gold is not as correlated to the US dollar as most think.

I commented on this a few days ago in Gold Surprisingly Correlated With the US Dollar.

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Gold has been positively correlated to the US dollar for well over a year.

Most of the time gold is inversely correlated to the US dollar.

The problem, as the lead chart shows, is that the strength of moves in gold vs the strength in moves in the US dollar are totally random.

Look at the period between 1995 and 2005. A huge jump in the dollar index yielded a relatively small decline in the price of gold.

Between 2005 and 2012 gold went on a long one-way tear up regardless of what the dollar did. The net result was a huge blast higher in gold vs the move in the US dollar index.

Gold and Miners vs the S&P 500

A few days ago someone Tweeted I was wrong about the positive correlation between gold and the dollar, stating that the correlation was between gold and miners and the S&P 500.

That idea is more than silly as the following charts shows.

Gold vs the S&P 500

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$XAU vs S&P 500

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Warning: Don't use short-term charts as a basis for making generalized statements.

Path of Least Resistance

That is another one of those blind statements that feeds the widespread belief that gold is largely about the dollar.

Let's look at this still one more way.

Various Price Points of Gold

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With the US dollar right where it is now, gold has been at $450, $380, $1080, and $1480.

Moreover, and as shown above, sometimes gold has a positive correlation to the US dollar and sometimes negative.

Gold's Big Surge

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Gold went on a huge surge from roughly $450 to $1924 with the US dollar index falling from roughly 90 to 72.70.

Gold then fell to $1045 with gold bears coming out of the woodwork. Moves in the dollar once again do not explain. Here is a chart that does explain.

Gold vs Faith in Central Banks

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If you believe the Fed has everything under control, then the primary reason to own gold is insurance in case you are wrong.

But one look at repo action and QE that allegedly is not QE ought to be enough reason to convince anyone that the Fed does not have things under control.

Price Target?

I have no price target, but I do have this observation:

If the dollar falls to 72.70 and gold acts the same way, gold will be at well north of $2000.

That is an "if and" statement, not a prediction. Yet, I do think $2000 gold has a very good shot. Dollar fundamentals help.

Dollar Fundamentals

  1. The Fed is no longer tightening. The consensus opinion is the Fed is in for a long pause. I believe the Fed's next move is another series of rate cuts. For discussion and an amusing set of "dot plots", please see Fed Eyes Long Pause, No Rate Hikes in 2020
  2. European central banks are starting to see the folly of negative rate. If the ECB joins the rate hike party or at least stops QE, that will put upward pressure on the Euro and negative pressure on the dollar.
  3. Without a doubt the US stock market is extremely overvalued. This has led to dollar inflows from foreigners. When, not if, that reverses, the US dollar will reverse as well. For discussion, please see Where Will the Stock Market Be a Decade From Now?
  4. The US also suffers massively from a Ticking Time Bomb of Record High Corporate Debt. When that breaks, it will not be good for US equities.

Where are We?

Not only are gold fundamentals excellent, dollar fundamentals help.

Got Gold?

Mike "Mish" Shedlock

Comments (22)
No. 1-8

Massive borrowing by govt,far far far more then the (pretend)1 trillion dollar deficit projections,real deficts YOY tracking over 3 trillion (at least) probably closer to 4-5 trillion,that's what driving repo madness,theJCB,BOE,PBoC are printing like crazy to buy all that US dept on top of there own dept buying time for the dollar......for now!


I don't quite follow. If gold is quoted in dollars or vice versa then an inverse correlation is baked in. For a comparison both gold and dollars should be priced in a third item.


I agree with Mish's analysis. In times of stress then you seek security in the least risky assets, these being currencies and gold. With the US$ being the best of a bad bunch, and the need for currency to transact in, it makes sense they can both move in parallel. Gold is great, but even on a personal and small scale level, you can't buy your groceries with gold sovereigns (at least not just yet), you need some sort of paper equivalent.


I agree there is no long term correlation between Gold and the USD & particularly not in the coming months. Here’s my simple analysis from an international perspective. I think about 30% of all USD debt is held by Non USD based investors/holders. So what do they think? The US stock market is trading at a premium, so high risk. US bond markets are trading at very low yields, so also risky but perhaps slightly less so because of the slowing US economy. The USD is high risk because of increasing money printing & debt. Other central banks are also printing money, but not to the same degree. So regardless of whether the expensive USD stock market & Bond Markets continue to defy gravity, the USD risk is significant for Non USD based investors. Therefore in my opinion international investors will be looking to rebalance their assets away from the USD. What will they buy? Their stock & bond markets are also expensive. I suspect Gold will be a prime target for many funds. There’s been a lot of publicity about the Fed supposedly supporting equities via QE and other money printing. The Fed can’t support the USD by printing money as they can’t print foreign currencies with which to buy dollars. They’d have to use their foreign currency reserves in an attempt to support the dollar. It never works. So in my mind, the key to what happens next, is whether international investors retain their confidence in the USD, and personally I don’t think they will. In the meantime, insurance is becoming more important so Gold should be well supported.


It doesn't make sense to look at gold/$ vs $. You have the dollar in both terms.

Look at gold/EUR vs. dollar index. It's a positive correlation since the origin of the Euro.

Alternatively, look at gold/$ vs. EUR. Same thing.


Where is your chart of gold against real interest rates? I know I’ve seen it somewhere.


Most people familiar with gold know there is often an inverse relationship with gold and the USDollar. But it varies from time to time. For the last 6-9 months the relationship has been an inverse relationship with gold and the interest rate on the 10 year treasury note. When the rate goes higher, gold drops in price. However, last week the USD and the interest rate went went up but gold also rose. As I said, it does vary from time to time.


There is a long-term positive correlation between the rising gold price and a rising US dollar since the beginning of 2008. This long-term correlation has been punctuated by several intervals of negative correlation, but the graph below shows that the heavy lifting done since 2008 looks like deflation


(The site says the figure has been uploaded, but I can't see it. It's in the link)

Global Economics