Trump slump in dollar lifts gold price to 4-week high

Gold has clawed back $50 an ounce since July 10 following dovish comments by Janet Yellen, chair of the Federal Reserve, about the pace of interest rate hikes in the US.

Those comments coupled with the lack of progress on fiscal stimulus policy in Washington put pressure on the dollar which on Friday weakened to its lowest level since May last year.

Source: Capital Economics

In late 2016, optimism about the economic impact of a Trump presidency and Republican control of both houses saw the greenback climb to 14-year highs, but sentiment has soured since then reports Yahoo Finance:

“Delays in the pro-growth Trump administration’s policies have not bolstered growth and in fact, the delay has led to disappointments in the US growth trajectory,” Deutsche Bank Wealth Management’s Larry Adam said.

The price of gold and the USD usually move in the opposite direction, but a new research note from Capital Economics points out  that unusually gold had been falling for most of the last month, despite the decline in the dollar:

Indeed, the fall in the gold price in the wake of a rise in US interest rates was more intuitive than the depreciation of the dollar. That said, more recently, the gold price has resumed its inverse relationship with the US currency.

The US dollar index, measured against a basket of currencies of the country’s major trading partners, fell to below 94 late on Friday.

Should the correlation between the currency and the metal reestablish itself, this chart suggest a gold price above $1,350 an ounce.

The US dollar’s all-time peak of 164.7 was reached in February 1985. That coincided with a bottom in the price of gold of $284.25 an ounce.