In uncertain times, investors often turn to traditional safe-haven assets. Gold and the USD are two of the most closely watched assets globally and both have long been seen as safe havens, though that has become less clear for the latter in recent years.
While both assets attract investor attention during periods of uncertainty, they are not the same thing. Understanding how they interact can help investors think more clearly about portfolio allocation.
The Basic Relationship Between Gold & The USD
Gold, like many commodities, is priced globally in USD. This is the starting point for understanding the relationship between the two assets.
When the USD strengthens relative to other currencies, gold becomes more expensive for foreign buyers. Demand may weaken and gold prices can come under pressure. Conversely, when the USD weakens, gold becomes cheaper for international buyers, which can support demand and prices.
Over the decades, gold and the USD have generally shared an inverse relationship. The DXY Index, which measures the USD against a basket of major currencies, has historically shown a negative correlation with gold prices. In simple terms, gold and the USD have often moved in opposite directions.
Interest rates also matter. When the US Federal Reserve (Fed) raises rates, USD-denominated assets such as bonds become more attractive because they offer higher yields. Gold, which does not generate income, can appear less attractive by comparison. When rates fall, that dynamic weakens, which can support gold prices.
This is why Fed policy remains one of the key things investors watch when considering gold exposure.
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When The Rules Break Down
The inverse relationship between gold and the USD is a long-term tendency rather than a fixed rule. In recent years, there have been periods when both assets rose at the same time.
From 2022 through early 2025, both gold and the USD often strengthened simultaneously, despite the traditional expectation that they should move in opposite directions. There are a few reasons for this.
Central banks, particularly in emerging markets, increased gold purchases significantly, buying more than 1,000 tonnes annually from 2022 onwards. Much of this buying was linked to efforts to reduce reliance on USD-denominated reserves. This created strong structural demand for gold even while the USD remained strong.
Persistent inflation concerns also supported gold prices. Even as the Fed raised rates aggressively, investors remained concerned that inflation could stay elevated. Gold’s reputation as an inflation hedge continued to support demand.
At the same time, geopolitical tensions, including the Russia-Ukraine conflict and US-China trade tensions, pushed investors towards both gold and the USD as safe-haven assets. By April 2025, gold had climbed above US$3,100 per ounce amid rising trade tensions between the US and China. Later that year, prices were trading well above US$4,000 per ounce.
The World Gold Council (WGC) has also noted that gold remained resilient even as real interest rates rose above 2% from 2022 onwards, levels that would historically have weighed on gold prices. Central bank demand and broader risk concerns helped offset those pressures.
The key takeaway is not that the gold-USD relationship has permanently broken down. Rather, the relationship has become more complex. Gold prices today are influenced not only by USD movements, but also by real interest rates, inflation expectations, geopolitical risks and structural central bank demand.
The De-Dollarisation Story
One of the larger structural trends supporting gold has been the gradual shift by some central banks and governments toward reducing reliance on the USD as a reserve currency.
This trend, commonly referred to as “de-dollarisation”, is gradual but measurable.
According to J.P. Morgan Global Research, global central bank gold holdings amount to nearly 36,200 tonnes and account for close to 20% of official reserves, up from around 15% at the end of 2023.
Emerging market central banks have been among the most active buyers. If this trend continues, it could provide a sustained source of structural demand for gold that is less sensitive to currency movements or interest rate cycles.
This remains one of the stronger long-term arguments supporting gold.
What This Means For Singapore-Based Investors
For Singapore investors, there is another factor to consider: the SGD-USD exchange rate.
Gold is priced internationally in USD. This means investors buying or holding gold in Singapore dollars are exposed to both movements in gold prices and in the Singapore dollar against the USD.
When the Singapore dollar strengthens against the USD, it can partially offset gains in the USD gold price because each USD converts into fewer Singapore dollars. Conversely, if the Singapore dollar weakens, SGD-denominated gold returns may receive an additional boost even if gold prices remain unchanged in USD terms.
The Singapore dollar has historically strengthened over time, which is generally positive for Singapore investors. However, it also means investors should not assume that USD gold returns will translate directly into equally strong SGD returns.
For many Singapore investors, gold may still have a role as a portfolio diversifier rather than as a short-term directional bet. Gold often behaves differently from equities and bonds, which can make it useful during periods of market stress. Like any asset, though, it works best when investors understand the broader economic and geopolitical factors influencing it.
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