Gold and the Dollar: Unlikely Dance Partners

by | Jan 15, 2025

Howdy folks,

This morning’s CPI (Consumer Price Index) numbers caused the market to shoot up at the open. But after that initial reaction, it just kind of… stalled.

Gold followed a similar pattern — spiking up, then pulling back before finally making its way back to the highs. Nothing too unusual there, except for one thing: silver and copper never pulled back the way gold did.

Instead they both continued higher, as if they were leading the way. Eventually, gold seemed to agree and followed their lead back up.

Now here’s where it gets interesting. If you’ve been following along in my updates, you’ll remember I mentioned last week that gold and the dollar are moving together.

This morning, the U.S. Dollar showed almost the exact same moves as gold. They both spiked up, pulled back, and then pushed higher again. That’s not what we typically see.

Usually, gold and the dollar move in opposite directions — when one goes up, the other goes down. (read my previous article to find out why.) But lately, they’ve been moving in sync, and it’s been catching my attention.

Why Is This Happening?

The big question is: Why are gold and the dollar moving together?

My guess is that the market is treating gold as an inflation hedge right now, tying its moves more closely to interest rates and the dollar than to its usual role as a safe-haven asset.

This isn’t completely unheard of, but it is uncommon. And it’s a reminder that the market doesn’t always follow the rules we expect.

For those wondering if this is a dangerous sign — don’t worry. It’s not necessarily a bad thing. It’s just a shift in how traders are viewing gold’s role in the current environment.

A Broader Perspective

The CPI numbers this morning showed that inflation is still hanging around, which could explain why gold is moving the way it is. After all, when inflation is in the picture, traders tend to look for assets that can hold their value — gold being one of them.

At the same time, the market seems to be reacting to interest rates and the dollar’s moves as well. It’s like a balancing act, with gold caught in the middle.

As for where things go from here, I’ll be keeping a close eye on how gold acts in the coming days. Will it keep moving with the dollar, or will it break away and follow its more traditional patterns?

And as I joked earlier today, maybe Trump will “fix it” when he takes office — but let’s not hold our breath on that one.

What to Watch Next

For now, pay attention to how gold, silver, copper, and the dollar interact. These relationships can give us clues about where the market is headed next.

And remember, gold isn’t just a shiny metal — it’s a reflection of what the market thinks about inflation, the economy, and the moves being made behind the scenes.

Let’s see what the next few days bring. Until then, stay sharp out there.

— Geof Smith

P.S. Are you making this very common “10 minute mistake”?

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