gmonchain

With the Fed on hold and other countries easing, you would think that the dollar would be more bid than it has been. Interest rate differentials, after all, are a tried-and-true driver for currencies.

Instead, the USD is teetering near its cycle low. It tells me that the dollar is playing to the beat of a different drum these days.

The same thing happened to gold a few years ago when it stopped trading in reverse lockstep with real rates. Real rates, which used to explain all of gold’s price action, rose from -118 bps in 2021 to +208 bps today.  Yet gold has more than doubled since then.

When both the dollar and gold - two of the world’s most important reserve assets – are no longer anchored by rate differentials or real rates, something is up. That something is a new multipolar world order in which central banks spread their reserves around to avoid being beholding to just one force. The result is a declining share of US dollars among reserve currencies and a rise in the value of gold.