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Gold smashes $2,200, all-time highs. What does it mean for US dollar?

Gold hits $2,200 after a dovish Fed meeting, setting new records. Combined with a dollar bounce back, does this surge hint at a changing relationship between gold and USD?
Source: Bloomberg
Picture of Frank Kaberna
Frank Kaberna
Director of Strategy, Chicago

Data current as of 3/21/2024

Key points

  • Gold prices hit new highs above $2,200: (0:42)
  • Gold negatively correlated to interest rates: (1:13)
  • How is gold at all-time highs?: (2:28)
  • US dollar bounces back after dovish FOMC: (3:39)
  • US dollar-gold correlation relatively weak: (4:40)

Gold prices hit new highs above $2,200

Following a dovish Federal Reserve meeting, gold futures soared, reaching unprecedented highs beyond the $2,200 mark. This rally exemplifies how monetary policy, particularly signals from central banks like the Fed, can significantly impact gold prices. With Fed Chair Powell confirming the likelihood of lower interest rates coming this year, future demand for gold could grow.

Gold negatively correlated to interest rates

Historically, gold prices have shown a negative correlation with interest rates: when rates drop, gold often rallies, reflecting its appeal as an investment alternative to interest-bearing assets. This relationship suggests that traders closely monitor central bank activities and interest rate forecasts, as these factors can provide insights into potential movements in the gold market.

How is gold at all-time highs?

Despite the Federal Reserve maintaining interest rates at 5.5%, expectations set by the Fed's dot plot anticipate a decrease to below 3.0% in coming years - with three 25bps cuts expected this year. This forecast has fueled the surge in gold prices to all-time highs, underlining the influence of projected monetary policy changes on investor confidence and market dynamics, particularly for precious metals.

US dollar bounces back after dovish FOMC

Despite initial weakness in response to dovish Federal Open Market Committee (FOMC) rate expectations, the US dollar has rebounded, appreciating against all major currency pairs. This recovery highlights the complex interplay between monetary policy, investor sentiment, and currency valuations, offering traders insights into how shifts in Fed expectations can affect the forex market.

US dollar-gold correlation relatively weak

While there is a recognized correlation between the US dollar and gold prices, it is not absolute—high gold prices do not invariably mean lower dollar values. However, they have shared a negative correlation historically, suggesting that positive movements in one often coincides with negative moves in the other. In recent months, this negative correlation has weakened, now close to only -0.25.

How to trade US dollar

  1. Open an account to get started, or practice on a demo account
  2. Choose your forex trading platform
  3. Open, monitor, and close positions on USD pairs

Trading forex requires an account with a forex provider like tastyfx. Many traders also watch major forex pairs like EUR/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.

You can help develop your forex trading strategies using resources like tastyfx’s YouTube channel. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.

Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.

Reviewed by:
Glen Frybarger
Senior Content Strategist, Chicago

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