Just release Gold Market Commentary said for the month of May that, the period following a dollar peak has historically been good for gold. “We assessed eight periods in history where the dollar experienced a prolonged contraction” said World Gold Council. The average duration of these pullbacks was roughly 22 months, during which the US dollar fell 23% and gold rallied 52%, on average.
Taking a deeper dive, when the dollar has fallen by at least 10% over a six-month period since 1971, the average return for gold during these periods was +14%. Additionally, gold returns were positive 87% of the time.
It appears the US dollar is in a protracted range-trading environment but having performed well recently it could be due for a further pullback following its first down month of 2024 in May. And as highlighted in our analysis, any prolonged weakness in the dollar should, at a minimum, ease headwinds and provide potential upside for gold over the ensuing months.
Gold has largely brushed off the stronger dollar recently as Eastern buyers have shifted their behaviour (buyers in emerging markets appear to be less attentive to the US dollar or Western monetary policy expectations), a weaker dollar going forward could bring back Western investors who are waiting for a trigger.
The US dollar bull narrative could be running short of arguments, and a dollar peak has historically been good for gold.
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