Gold Has Been Surprisingly Resilient Despite Surging Dollar and Yields

The U.S. dollar and Treasury yields have recently surged at a rapid pace, a scenario that typically sends gold prices tumbling. Yet, gold's resilience signals an impressive underlying strength.

I’d like to highlight an intriguing trend that many in the precious metals community, including myself, have observed: gold has shown remarkable resilience despite the sharp rise in the U.S. dollar and Treasury yields over the past few months. This resilience underscores gold's high relative strength. The surge in the dollar and Treasury yields has been driven by rapidly rising inflation expectations—particularly following President-elect Donald Trump’s victory in November—as well as growing concerns about the U.S. fiscal situation.

Since early October, the U.S. Dollar Index—a key measure of the U.S. dollar’s strength relative to other global currencies—has staged an unexpected rally, climbing roughly 10%. While a move of this magnitude might be common for a stock, it is exceptionally sharp by currency market standards. It's important to note that this strengthening refers specifically to the U.S. dollar’s exchange rate against other currencies, not its purchasing power—a distinction that often confuses people.

Much like the U.S. Dollar Index, U.S. Treasury yields have surged since October, fueled by rising inflation expectations following Trump’s election victory, largely due to his proposed economic policies—particularly tariffs—which are expected to be inflationary. In addition, 'bond vigilantes' are demanding higher returns to compensate for the growing fiscal concerns associated with U.S. Treasuries.

Historically, a strong dollar is unfavorable for gold, as gold—and commodities in general—tends to trade inversely with the dollar. Likewise, rising interest rates or bond yields usually put pressure on gold because it doesn’t generate any yield, prompting many investors to shift funds away from gold and into higher-yielding assets. However, what’s particularly striking is how gold has maintained its ground over the past few months, despite the surging dollar and rising interest rates. This resilience highlights its high relative strength, suggesting that another surge may be on the horizon, especially if the dollar and rates finally pull back.