2018: Dollar Down, Gold Up
The comments above & below is an edited and abridged synopsis of an article by Adrian Ash
The year begins with smart people saying 2018 looks good for gold investing, and so far, the market agrees.
The gold price in dollars just made its strongest run of back-to-back daily gains since February 2016, rising on 10 out of 11 trading days.
Analysts forecast solid prices for 2018. A possible stock market drop is one reason; the risk of rising inflation is another, given near record-low jobless rates and resurgent government deficits.
There is also a weak outlook for the dollar. A falling dollar should prove generally positive for dollar-denominated commodities, especially gold as a currency in its own right.
The weak dollar outlook stems from other forecasts and guesses: a weaker-than-expected bump from Trump’s tax cuts, to disappointment with the Fed’s pace of rate hikes, plus tighter interest-rate policy in the EU.
But if a drop in the dollar helps push gold higher, doesn’t that mean non-dollar gold investors could miss out? History says maybe. But it’s unlikely.
The dollar’s strength has been reflected in the dollar gold price. When the Dollar Index has fallen 10% or more, gold has risen for US investors. When the Dollar Index has risen by 10% or more, gold has tended to sink in dollar terms. Overall, the Index has tended to reflect moves in dollar gold prices on an annual basis. They have moved in opposite directions some 63% of the time.
However, gold not priced in dollars went in the same direction as gold priced in dollars far more often, moving higher or lower together over 86% of the time. For investors, the 6 years when gold diverged from its dollar price show no clear pattern.
So, movements in the dollar have only tempered or extended the size of gold’s changes for ‘Not Dollar’ investors. They have rarely negated its direction.
A weak or strong dollar has tended to see gold rise or fall for US and non-US investors alike. And for 2018, expert consensus says the dollar is likely to drop.