It’s been a volatile year for both the stock market and the U.S. dollar. While the dollar did see a heartening upswing after April, the current state of national and global politics has made it hard to predict with any reasonable degree of certainty how the dollar will fare at any point in the near future.
Speculation that the Federal Reserve would raise interest rates helped the value of the dollar, but overall, the period from June 2017 to June 2018 was not particularly kind to the dollar. After a skid from June through September 2017, the dollar began to recover for several months before plummeting at the start of 2018, hitting its lowest points in February and the end of March before starting a climb back up. By mid-2018, the dollar was back to where it was in November 2017.
Gold’s relation to dollar value
What has been interesting to watch over that time was the inverse correlation between gold and dollar value. A look at the charts shows that as the dollar fell in value, gold would rise, and vice versa. This does not necessarily mean the dollar will always be a good predictor of gold value (or the other way around)—in fact, gold investors should be very wary of putting too much emphasis on the way the dollar value fluctuates if they’re attempting to discern the prospective long-term trends in their precious metal investing plans. But still, it has been interesting to see these reactions occur over the course of a year and a half or so.
Of course, perspective is important, which is why it’s helpful to look at historical data comparing the value of the dollar to the value of gold.
The value of the dollar absolutely exploded in the mid-1980s and then came back down to earth several years later. It had its ups and downs through the 1990s before a very successful period in the early 2000s, ultimately falling back down by the recession in 2008 to its lowest point yet within the last several decades. Meanwhile, gold really didn’t fluctuate much at all from the 1980s through the 1990s. The real surge began around the time of the recession in 2008, and while there has been a drop-off since then, gold remains significantly higher in value than it had been throughout all of the several decades preceding the recession.
Ultimately, it’s important to keep perspective in mind if you’re a current precious metals investor or are thinking about putting some of your wealth into precious metals. You cannot solely rely on dollar value as a predictor—there are other factors you must take into account. Our team is happy to assist you as you begin allocating some of your wealth to precious metals, and we are happy to provide you with advice about the best strategies to use in your wealth management. Contact our experts at Gold Wealth Financial today for more information—we look forward to working with you soon.
- by Steve Hunt
Categorised in: Precious Metal Investing