by Russell Shor
The Dollar and Gold are Related
For much of market history, the dollar and gold have moved in opposite directions. When the greenback strengthens, the precious metal often falters; when the dollar weakens, gold tends to shine. There are exceptions, of course, but the inverse link remains a defining feature of their relationship.
One reason is straightforward: gold is priced in dollars. A drop in the currency makes bullion cheaper for buyers using other currencies, lifting demand and often sparking rallies. Conversely, a firmer dollar can sap interest, pushing prices lower.
This interplay has been especially influential in 2025, with shifting dollar dynamics shaping gold’s path and reinforcing just how tightly the two assets remain entwined.
Dollar Weakness at the Core
The dollar’s slide through August has been central to gold’s surge. A weaker greenback makes the metal cheaper to buy and strengthens its appeal as a store of value. This long-standing inverse link is once again driving the rally, a theme underlined at Jackson Hole.
Policy Shifts Driving Momentum
Jerome Powell’s speech reset market thinking. A September rate cut now looks likely, with another possible before year-end. Lower rates pull real yields down, reducing the cost of holding gold. The dollar dropped sharply on 22 August after Powell’s keynote, adding fuel to bullion’s climb.
Politics Add to the Strain
Policy is not the only pressure. Moves to remove Federal Reserve Governor Lisa Cook rattled confidence in the bank’s independence. Trade disputes and tariff battles have added to concerns over the dollar’s reserve-currency role. These strains deepen the decline and lift gold’s appeal.
Flows Back Up the Story
Flows confirm the shift, with global gold ETFs drawing roughly $44 billion by mid-August, putting 2025 on course to rival the 2020 record. Lipper data also showed $556 million moving into gold and precious-metals funds in the week to 27 August. Central banks remain active, with China extending purchases into July, Poland adding to reserves, and the People’s Bank of China logging a ninth straight month of buying. The shared aim is clear: diversify away from the dollar and build lasting support for bullion.
The Takeaway
Gold’s rally is not simply about higher prices. It reflects policy shifts, political tension and eroding confidence in the dollar. The greenback’s decline is fuelling demand, but more importantly it signals a structural change in how investors and central banks are positioning for the future.
Click to find out more about gold spread bets with Tradu
