So far this year, the price of gold has risen by 27% while the US dollar index has fallen by 9%, and the negative correlation between the two has reached -96% so far this year, a strength of negative correlation that has only occurred seven times since 1990.
In this regard, Morgan Stanley pointed out that if this correlation continues, it is predicted that the US dollar index will fall to 91 in the second quarter of 2026, and the price of gold is expected to reach US$3,800 per ounce.
According to the latest research report from Morgan Stanley analyst Amy Gower and her team, this extreme correlation is often accompanied by “outperformance” in gold prices.
Over the past five months, gold has shown an inverse correlation with the US Dollar Index of -96%, which is well above the average since 1990 of -39%, according to the data.
This is a historical rarity as there have only been seven periods of strong negative correlation above -95% since 1990.
During these periods of ultra-strong negative correlation, gold’s 5-month rolling yield has averaged 8%, well above the overall average of 3% since 1990, and in 5 of the 7 historical periods over 35 years,
has shown a pattern of a declining US dollar/rising gold, which has often been supported by other factors such as ETF inflows, demand for risk aversion and central bank purchases.
The report expects the US dollar index to fall to 91 in Q2 2026 as interest rates in the US converge with those elsewhere and the dollar risk premium rises. Based on the current correlation between gold and the US dollar index,
this forecast implies that the gold price could reach $3,800 per ounce, above Morgan Stanley’s previous target of $3,500 per ounce in H2 2025.
The report also adds that while super-strong correlations have historically signalled gold rallies, these periods have typically been short-lived, with the longest ever lasting 44 days in 2007 and the current one lasting just nine days.
The longest period in history lasted 44 days in 2007, while the current period lasted only 9 days. According to Morgan, this is similar to the 2007/2008 period, which usually signalled a high gold rally followed by a range-bound movement, which is a normal phenomenon.
In the author’s view: Against the backdrop of the continued weakness of the US dollar, which is further favourable to the safe-haven asset gold, the fundamentals and technicals support the prospect of a further rise in the gold price.
At 00:30 HKT, spot gold was quoted at USD 3333.05/oz.
Author: Martin (Analyst) 10-06-2025
#The above is the author’s personal opinion and has nothing to do with the Company’s position.
#The strategy is for reference only, there are risks involved in entering the market and you should be careful when investing.
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