Gold Price Rises on Fiscal Uncertainty, Not Dollar Weakness

The price of gold in euros has risen alongside its value in US dollars, suggesting that the move is not solely driven by dollar weakness. According to Rhona O'Connell, Head of Market Analysis for EMEA and Asia at StoneX, this distinction is crucial because a dollar-driven move in gold tends to unwind when the dollar recovers, whereas an uncertainty-driven move does not.

O'Connell points out that the US federal debt has surpassed 100% of gross domestic product, leaving the Treasury with little fiscal headroom as maturities roll over. This has led to a broader bid for gold, tied to fiscal uncertainty rather than exchange rate movements.

Furthermore, O'Connell notes that rising U.S. Treasury yields and a rising gold price are responses to the same fiscal pressure, rather than opposing forces. She describes this setup as one that 'points to tailwinds rather than a tug of war', implying that a further rise in long-dated yields would remove a headwind for gold instead of adding one.

This analysis has significant implications for investors holding gold outside the United States, who must consider the currency of measurement when assessing the underlying drivers of gold's price movement.