Dollar's Weakness May Be Coming to an End

The US dollar's weakness has been a major driver of gold's recent price increase, pushing the precious metal to multi-month highs in Asian trade on Monday. However, tentative signs that the dollar may be trying to bottom out ahead of an expected fiscal update from Treasury Secretary Scott Bessent raise concerns for bullion bulls.

The correlation matrix shows that gold has moved closely with silver and copper over the past five days, with correlations of +0.93 and +0.90 respectively. Its positive relationship with Bitcoin has also strengthened to +0.63. Meanwhile, gold's inverse correlation with the US dollar index has fallen to -0.84.

The technical picture for gold remains firmly bullish, with the price breaking above its longer-term downtrend in July and reclaiming the 50, 100, and 200-day moving averages. However, a near-term reversal in gold prices is starting to build due to the strong inverse relationship with DXY combined with tentative signs that the dollar may be trying to bottom out.