The dollar declined somewhat between 16 July and 30 July. It came back a bit the past two trading days. On a trade-weighted basis, using the Morgan index, the dollar fell 2.2% from 16 July to 30 July, and has since recovered nearly half of what it had given up. Against some currencies it fell more, obviously.

The dollar had declined a more significant 7.5% since its 23 March peak, at the start of the global pandemic and economic lock down.

To be fair, as the charts below illustrate, at the end of July the dollar had dropped to its lowest exchange rate only since late January and remained far above its exchange rates or values from May 2003 until 2018.

Yet, in the gold market there were any number of voices trumpeting the death of the dollar. Several internet headlines read: The dollar may reach zero by the end of the year.

That’s not likely. In fact, the dollar is reasonably strong at present, as investors overall have continued to see it as a safer currency in which to park one’s wealth along with gold.

It is not necessary for the dollar to decline for gold prices to rise. The correlation is only -33% over the 50 years of free gold prices. That means that there are plenty of times when the dollar and gold both rise or fall together instead of moving in opposite directions. The co-incidental rises in gold and the dollar often are during financial or economic crises, when investors around the world turn to gold and the dollar as the two safest havens. Sometimes investors only turn to the dollar. Sometimes investors only turn to gold. At other times they see both as the place to put their money when times are hard.

With around 62% of total foreign exchange reserves held by central banks (excluding the United States) in U.S. dollars, and with around 70% – 80% of private financial wealth estimated to be held in dollars, investors and others around the world remain heavily committed to the U.S. dollar, and do not show signs of abandoning it. The more than $3.7 trillion dollars being spewed out by the Treasury this year has only added to the hegemonic imbalance of U.S. dollars compared to all other currencies combined. As CPM wrote recently: If you owe the bank enough, you own it. The same is true for the U.S. Treasury’s

The same is true in terms of U.S. Treasury interest rates. Investors may not like the lower rates this year and in the past two weeks, but consider the nature of the alternatives before you conclude that investors of the world are about to unite in a strike against U.S. Treasury Notes.

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