What is the Surge in Gold Saying About the US Dollar?
With XAUUSD topping 2500 to set a new record high on Friday, the question is whether this is a speculative bubble or is there more to the surge in the precious metal?
When I read that Costco has generated an estimated $100 million to $200 million in gold bar sales per month to members, it suggests there is a bubble mentality to play.
On the other hand, there may be more to it.
Typical factors cited in gold’s sharp rise this year include
- Rising geopolitical risks
- Expectations of interest rate cuts
- Concerns over budget deficits
- Hedges against inflation
- Buying by central banks
XAUUSD sets a new record high
Source; The Amazing Trader Charting Algo
Worth noting is while gold is seen as a safe haven, there is no angst seen in US equities or US bonds. A look at the US Dollar Index shows that it closed the week around its low for the year, suggesting, as I noted, perhaps there is more to it.
US Dollar Index Weekly Chart
Source; The Amazing Trader Charting Algo
Diversification?
The weaker dollar along with gold setting a new record high, suggest that diversification away from the US dollar may be a factor. Without going into possible reasons for diversification, a case can be made that the price action and charts suggest that this may be driving the flows.
So, whatever the case, if you are looking for a reason for the surge in gold, there is certainly a speculative component that could be viewed as a bubble but it would be offset by a desire to diversify away from the dollar.
For me, who trades currencies and not gold, I will keep an eye on the XAUUSD 2500 level and EURUSD 1.10 in its role as the anti-dollar to see if this is a sign of diversification away from the US dollar, at least ahead of the US election and perhaps beyond.
EURUSD WEEKLY CHART (closed the week above 1.10)
Source; The Amazing Trader Charting Algo
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