The Dollar is correcting on Thursday morning, losing around 1 from Wednesdays peak, when the dollar index rose to its highest since May 2020. It has caught our attention that Gold and the Dollar have been moving in tandem since the start of the year. A historically rare and shortlived combination that has only intensified recently. Gold and the Dollar have risen backtoback over the past week, having retreated somewhat from local highs yesterday.

The correlation between the Dollar and Gold is easily explained by the flight of investors away from the conflict. The pull into Gold is more like a kneejerk reflex. Much of it is speculation that investors will buy Gold as protection against inflation, financial system weakness or geopolitical instability.

However, it is worth realising that the alternative to traditional finance now is not Gold, but cryptocurrencies, which have no storage costs and are better shareable and transferable.

In modern finance, Gold often gets a role of a commodity asset. In other words, we could see this correlation break down as early as the next few days.

And from the fundamental point of view, the chances are higher that the dollar offensive might be renewed in the coming days. On Wednesday and Thursday, we see typical profittaking before the long weekend after the rally. Behind the Dollar are expectations of extremely hawkish moves by the Fed, as FOMC members are fuelling the idea of a onetime 50point rate hike in early May and are not…