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For precious metals, few forces matter more than the direction of the U.S. dollar, and right now that direction is genuinely in play. A weaker dollar and precious metals tend to move in opposite directions, so when the dollar loses its grip on a long-term uptrend, gold and silver usually gain room to run, while a stronger dollar weighs them down. The U.S. dollar index is currently defending the multi-year support that has framed its advance, even as dollar yen has already slipped below its own trendline. That split is why metals traders are watching the dollar's next turn so closely, because the support the dollar holds or loses could set the tone for gold and silver from here.
Razan Hilal is a Chartered Market Technician and Market Analyst for FOREX.com, with seven years of experience covering forex, commodities, and equity indices. Her work in intermarket analysis, which tracks how moves in the U.S. dollar ripple across currencies and precious metals, sits directly on the question of what a dollar turn means for gold and silver.
"That would likely also shift the long term outlook for global currency pairs and precious metals, whereas a long term bullish forecast, possibly towards new records on the horizon", Hilal explains, describing what a confirmed long-term break lower in the U.S. dollar would set in motion. A weaker U.S. dollar typically lifts precious metals because it makes gold and silver cheaper for buyers holding other currencies. As a result, a decisive downside shift in the U.S. dollar index would remove one of the main weights that has capped precious metals during the dollar's recent strength. For metals traders, that turn is the signal worth watching, because it could mark the start of a fresh leg higher rather than another false start.
The flip side of the same relationship is that a resilient U.S. dollar keeps precious metals boxed in. As long as the U.S. dollar index holds its uptrend and pushes toward the top of its multi-year range, gold and silver face a persistent headwind. According to Hilal, a fresh dollar breakout would extend that pressure, "applying further pressure on major currency pairs and precious metals for another potential leg lower across the year before a long term reversal emerges". That would mean the metals complex may have to weather another decline before the eventual dollar turn arrives, keeping the timing of any durable rally tied to when the U.S. dollar finally rolls over.
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--- Written by Gus Farrow, Senior Manager, StoneX Media
--- Expert: Razan Hilal, FOREX.com Market Analyst
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