It took 15 years for gold prices to climb from $1000 to $2000 per ounce. The next jump of $1000 came in a shorter time span of 14 months and just 207 days for gold to surge above $4000 per ounce.
Gold prices breached a historic high of $4000 per troy ounce, internationally last week. And that brings us to the relationship between gold prices and the US dollar. It is fundamentally an inverse relation, which means that generally, as the value of the dollar strengthens, the price of gold tends to fall, and when the dollar weakens, the price of gold rises.
Gold is considered a dollar-denominated commodity. The US dollar’s relative strength is measured using the dollar index, which tracks the currency against a basket of six other currencies.
Understanding the gold-dollar dynamic
The relationship between the dollar and gold is measured by investor behaviour and purchasing power dynamics.
What it means is: when the dollar index strengthens, investors often prefer to move their capital into dollar-denominated assets. They seek assets or currencies that protect their value. Since gold is a non-yielding asset, a strengthening dollar draws money away from it.
In contrast, a declining or weakening US dollar provides a significant boost to gold prices. When the US dollar weakens, investors move money out of dollar-denominated assets to protect the value of their holdings. This capital seeks alternate destinations, with gold, the traditional store of value, being a primary recipient. As the demand for gold increases, especially when panic drives investors to prioritise capital safety, prices rise correspondingly. In addition, a weaker dollar makes dollar-denominated commodities, including precious metals, more affordable and appealing to international buyers using other currencies.
So why are gold prices surging now?
Gold has experienced a spectacular run over the last three years, surprising many investors and analysts with continuous record highs. While some previous factors like the Russia-Ukraine conflict, the Israel-Iran war, and trade wars contributed to earlier surges, these geopolitical issues appear to be fading or under control. Instead, the US dollar is currently identified as the new significant trigger continuing the gold bull run.
The spectacular performance of gold is directly linked to the sharp drop in the US dollar index, which had fallen nearly 12% in 2025 (as of July) to a multi-year low of 96, the sharpest fall since 1973.
Multiple reasons why US dollar index is falling
– US President Donald Trump’s policies have been cited as eroding the dollar, speeding up “de-dollarisation”. Trump has undermined institutions, questioning the independence of the US Federal Reserve by putting pressure on the Fed chief to aggressively cut rates. The breakdown of trust in US institutions is considered a pivotal driver of the current leg of the gold cycle.
– Trump’s announcement of reciprocal tariffs on trading nations is expected to unleash currency wars, with the USD could end up being a big casualty of this tactic. Tariffs are also shrinking the US share of international trade and eroding the use of the US currency globally.
– The expectation of increased US debt, potentially over $3.9 trillion, due to Trump’s proposed ‘One big, beautiful bill’ is raising serious red flags. The US carries a debt of $35.46 trillion against a 2024 GDP of $28.83 trillion, resulting in a 123 percent debt-to-GDP ratio. Worries over this growing public debt and a widening budget deficit led to a downgrade of the US credit rating by Moody’s Ratings. This structural deficit is noted as the worst among the Group of Seven (G7) nations, contributing to the loss of US ‘AAA’ investment ratings.
These factors threaten the dominance of the US dollar, reducing the trust that US Treasury bonds enjoyed. Global investors are expected to reduce exposure to US bonds to shield themselves from losses, thereby increasing the pressure on the dollar index and boosting gold demand.
While the dollar’s immediate decline is a key driver, experts also point to longer-term factors. A more enduring gold rally is tied to how central banks approach monetary policy and their own reserves. Central banks are recognising that boosting liquidity is often the necessary way out of economic downturns since populations resist austerity, and this increased liquidity lifts the relative value of assets like gold. Central banks also continue to purchase gold. Gold’s performance remains influenced by geopolitics, trade wars, and central bank reliance, with negative consequences in these areas impacting the dollar index and subsequently benefiting gold.