October has been a strong month for gold — and oddly enough, just as strong for the U.S. dollar. Numerous economists are starting to draw attention to the increasingly noticeable correlation between the two, which have rallied in lockstep throughout the month despite historically being negatively correlated.
The U.S. Dollar Index (DXY) has gained strength throughout the year and is close to retracing losses from a mid-year slump. The index is up 3.12% on the year and nearly 4% in October as gold also pushes to all-time highs. Gold is also up about 4% in October, continuing its near one-sided move to the upside, resulting in a $700 an ounce rise in spot prices in 2024, equaling a 34% year-to-date gain.
It’s becoming noticeable
Since May 2023, gold and the dollar have risen at remarkably similar rates.
In an April report, The Street’s David Dierking drew several conclusions based on the uncharacteristic correlation, suggesting that both rallies are indicative of investors taking risk-off positions.
“I believe gold is acting as a risk-off asset right now and the dollar is acting sort of as a risk-off asset,” he wrote. “But we can unquestionably say that their correlation has turned decidedly positive as we can see with the chart above.”
So what’s it mean?
Dierking suggests the increased correlation could predict a bear market coming to equities.
“The higher the correlation between gold and the dollar, the deeper the S&P 500 correction tends to be,” he wrote. “The two times that the gold/dollar correlation went above 0.50 in recent years was just before the COVID recession and during the 2022 stock/bond bear market, the two deepest drawdowns since the financial crisis. The correlation nearly hit 0.5 in late 2018 and coincided with a 20% drawdown in the S&P 500.”
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