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Gold vs US Dollar

If much has been written about the relationship between gold and silver, and gold and oil, a positive avalanche of information, advice, and technical analysis, has been published on the relationship between gold and the mighty ( or once almighty) US dollar. To dilute this down for you to a relatively simple analysis, gold and the US dollar generally correlate inversely, so when the US dollar weakens then the price of gold rises, and when the dollar strengthens then the price of gold falls. Whilst this is a generalisation, it is one of the correlations that tends to hold good, provided you consider the relationship over longer terms of 12 months or more. There are, of course, leads and lags in these periods, and in addition the percentage change in one, may not necessarily reflect the percentage change in the other, but broadly speaking this is generally the case and has been so, ever since the introduction of the floating currency system in the early 1970’s. From the early 1970’s until present time there have been three major divergences. The first of these occurred between 1978 and 1980, in the mid to end of 1993, and in the same period for 2005.

The principle measure for strength or weakness in the US dollar is the Dollar Index, a weighted average of the dollar’s exchange rate against six of the world’s major currencies, of which the euro is by far the largest at 58%, followed by the Japanese yen ay 14%, UK pound at 12% and the Canadian dollar at 9%.