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  • Writer's pictureHoldCo Markets

Gold and the Dollar Moving in Unison

Updated: Jun 12, 2022

Only sixteen months ago so many of the pundits in the financial community and were predicting that the U.S. Dollar would collapse, with the majority of armchair investors (rather, speculators) extremely bearish on the Dollar. Since hitting a low on January 2021, the DXY has advanced by +12.1% (recently surpassing the 100 level) while the Swiss Franc and the Euro have declined by -5.3% and -10.9% respectively (against the Dollar). Of note is that gold futures have advanced by +4.2% in that same timeframe. It wasn’t the Dollar that collapsed, but the Euro instead.

We continue to warn (our Swiss friends in particular) that the Swiss Franc cannot continue being perceived as a safe haven. There will be a point where the Swiss National Bank (SNB) Will move to protect the Swiss export industry and will utilize all the tools necessary to weaken the Swiss Franc to be in line with the Euro. We remind investors the SNB stunned the markets on January 15, 2015, when it scrapped the 3-year old peg of 1.20 Swiss franc per Euro (note the spike below). In a chaotic few minutes after the central bank's announcement, the Swiss Franc soared by around 30% in value against the Euro. This came only days after SNB Vice-Chairman Jean-Pierre Danthine said that the cap would remain the cornerstone of its monetary policy! So be reminded of what happened in the past, and what may come again in the future.

Historically gold has been safe haven when currencies were devaluing. Over the last twelve months spot gold is up 22% versus the Euro. It’s no wonder why so many German investors are buying gold. The older generation remembers that Germany had five currencies over the last 100 years (yes, …five. Lets also not forget the East and West days before reunification). Four of those currencies ended pretty much worthless. Only the Deutschmark remained as a solid currency in its time, but it was abandoned in 2002 to make way for the Euro.

Currencies come and go, gold has been going strong for thousands of years already. What’s interesting now is that gold and the Dollar are moving together, abandoning (for now at least) the long lived inverse correlation relationship.

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