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So far this (short) year, gold has been far more than just a dollar story. This should not be that surprising, not least as this is traditionally the time of year when we see increased demand from Asia ahead of the Chinese New Year. We wrote about this earlier this month (Gold conundrum?), and also highlighted the fact that gold dragged behind the inverse relationship with real interest rates late last year and also in early 2012. This still remains the case, with our measure of the global real interest rate still in negative territory, as has been the case for most of the year to date.
Gold remains around 12% below the highs seen in September of last year, so for the gold bulls there is still plenty to play for. But the dollar will still be the main factor in determining whether gold can make a sustained push back towards that level. So far this year, the dollar has found itself fairly well supported, despite the S&P being up nearly 4% this year. Should the dollar continue to be less correlated to risk assets, it could be tough going for gold.
