The USD Index surged to 102.59 on Monday, its highest level since April 2025, surpassing the 102.50 cap seen earlier in October. Meanwhile, gold prices dropped by $25.70 to settle at $4,190.60, trading near $4,210 as the dollar and oil prices eased. This divergence, gold not hitting new lows while the dollar reaches new highs, raises questions about whether gold's resilience is strength or merely delayed selling.
The dollar's breakout was driven by rising oil prices, which weakened the euro and yen, key components of the USD Index. Oil's 2% increase on Monday contributed to the euro falling to $1.1158. The USD Index has since eased slightly to 102.35 as oil and yields pull back.
Gold's reaction to the dollar's rise was muted, with a 0.61% decline on Monday, more than the dollar's 0.37% increase. Since October 7, the dollar has made new highs while gold has stayed above its lows. Three factors contribute to this divergence: the dollar's strength stems from oil flows and a weak euro rather than Fed rate expectations, escalating tensions in the Gulf driving gold-backed ETF inflows to a four-year high, and gold's rebound following a completed head-and-shoulders pattern.
Despite record ETF inflows, gold's bearish outlook remains. ETF flows often follow price movements and headlines rather than leading them, and past data shows that strong inflows during declines can reverse quickly. For instance, in 2012-2013, gold ETF holdings reached record levels during a corrective rally, only to see significant redemptions in 2013, fueling a steep decline.