Gold and the US dollar tend to move in opposite directions, which makes sense because whenever the dollar is facing uncertainty, investors rush to gold, and whenever the dollar is strengthening, gold sees outflows.
Now, using this information, we can clearly see that this is the case currently where gold made new all-time highs and the dollar has been weakened significantly. We saw in the dollar index (DXY) that it dropped to a low of around 95, which hasn’t been seen since the middle of the year in 2022, so it has made an almost 4 years low, which signals that something is wrong.
Now, with that signal that something is wrong, we see an influx of investors in Gold, and it became heavily overbought, which quickly came crashing. This crash was paired with the DXY recovering slightly, and now both assets are just consolidating (moving sideways). The problem with this consolidation is that it is quite hard to identify which direction we are planning to go. On Gold we have 2 possible scenarios, it can either break the consolidation range and give us new all-time highs, or it can continue crashing down, and unfortunately for gold, it seems that the crash is the more likely scenario especially when you consider that politics around the US aren’t as volatile as they were earlier this year with the situation in Venezuela and Greenland. There is, of course, some controversy still but it’s not huge news and it isn’t breaking any headlines, this means that we are likely to see the dollar strengthening in the next few weeks.
There are also other factors, like news events including interest rates and CPI (Core-Price Index) which could definitely help the dollar gain more strength if the news proves to be favourable for the US dollar.
So, what should investors be doing? Well, I wouldn’t say it is a good idea to invest in either right now, it is best to wait for further confirmation from both before you make a decision on which you want to invest in. Right now, anything can happen and you do not want to make impulsive decisions in your investments which could cost you heavily down the line. A good way to track what might happen is to look at dollar dominance, because if it is strengthening over other currencies, that might be a really good sign that investors are running towards the US dollar again.
(Just my opinion, not financial advice)