Chennai: After a fall in May, the US dollar has been trading range-bound. Any prolonged weakness in the greenback can turn positive for gold, which made an all-time high in mid-May, said the World Gold Council.
Gold posted a third consecutive monthly gain in May, rising by 2 per cent month-on-month to $2,348 per ounce. Despite the more moderate gain compared to March and April, gold hit a new all-time high of $2,427/oz mid-month before pulling back on some profit taking.
The US dollar rally, however, went into reverse in May –falling for the first time in 2024 – as inflation eased, giving the Fed more room to cut interest rates. "And as we look forward, the dollar bull narrative could be running short of arguments for the next leg higher," it said.
It appears the US dollar is in a protracted range-trading environment but having performed well recently it could be due for a further pullback following its first down month of 2024 in May. Any prolonged weakness in the dollar should, at a minimum, ease headwinds and provide potential upside for gold over the ensuing months, said WGC.
The period following a dollar peak has historically been good for gold. WGC assessed eight periods in history where the dollar experienced a prolonged contraction of roughly 22 months. When the US dollar fell 23 per cent, gold rallied 52 per cent, on average.
When the dollar fell by at least 10 per cent over a six-month period since 1971, the average return for gold was over 14 per cent. Additionally, gold returns were positive 87 per cent of the time.
