The Relationship Between Gold and the US Dollar

Gold usually moves in the opposite direction of the US Dollar and US Treasuries. When the dollar loses value or when risky investments fall, gold prices tend to increase. This makes gold a good choice for diversifying an investment portfolio during uncertain times. Gold prices are influenced by many factors, such as geopolitical issues and interest rates. Generally, lower interest rates make gold more attractive, while a strong US Dollar tends to limit its price. Since gold is traded in dollars, its value changes with the dollar’s strength. FXStreet calculates the price of gold in India by converting global prices from USD to INR, updating this daily. Local gold prices may differ slightly from these figures. Today, October 27, 2025, we see a small drop in gold prices. This decline seems to be due to renewed hopes for a US-China trade deal, which is reducing the demand for safe-haven assets for now. Traders in derivatives should keep a close eye on this situation, as it may not signal a significant downturn. Despite this slight decline, there is strong overall buying from central banks. After record purchases in 2022 and 2023, the World Gold Council reports that central banks added another 290 tonnes in the first quarter of 2025, marking the best start to a year ever. This steady demand sets a strong foundation for gold prices.

The Interest Rate Climate and Gold

The current interest rate landscape is also favorable for gold, which does not provide any yield. Following the significant rate hikes in 2023, the Federal Reserve has indicated a more relaxed approach. Futures markets predict at least two rate cuts by mid-2026. With lower borrowing costs, it becomes less costly to hold gold. This relationship with interest rates significantly influences gold prices, and temporary geopolitical news can only disrupt it for a short time. While a strong US Dollar has controlled gold prices to some extent, we expect the dollar to weaken as the Fed continues its easing policy, which will likely raise gold prices. Traders should avoid making large bearish bets based on short-term news. Given these conditions, traders might see the current price drop as a smart buying opportunity. Using options to benefit from a rebound in the upcoming weeks might be wise. Purchasing call options or setting up bull call spreads can help participate in a potential recovery while limiting risk. Create your live VT Markets account and start trading now.

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