(Kitco News) - Gold bulls and dollar bears continue to dominate global markets—an enduring trend that one top strategist says is far from over.
Tim Hayes, Chief Global Investment Strategist at Ned Davis Research, has been bullish on gold since October 2023 and bearish on the U.S. dollar since March of this year. In his latest research report, he said he sees no reason for either trend to reverse course in the near future.
“Gold’s long-term momentum supports the prospects for it to rise as much as, or more than, in previous extended bull markets,” he said. “The implication for the dollar is that downside momentum will produce weakness consistent with previous bear market declines.”
While the U.S. dollar has dropped sharply this year, Hayes said it would need to fall another 10% before it could be considered undervalued. At the same time, he pointed out that when gold prices peaked in 1980, they were three times higher than their trendline growth.
“Gold looks extended from a long-term perspective, now above its trendline growth by an amount last seen in 2013. But it wouldn’t be unprecedented for the secular bull to continue,” he said.
Hayes added that the biggest driver of U.S. dollar weakness and gold strength has been the ongoing global de-dollarization trend. He noted that global central banks continue to move away from the dollar and buy more gold.
“More generally, waning confidence in U.S. leadership and policy is negative for the dollar and positive for gold—a store of value that stands to benefit during periods of uncertainty,” he said.
Hayes also suggested that investors should start paying closer attention to equity markets, as a selloff could trigger gold’s next leg higher.
“If it becomes increasingly evident that the dollar has entered a secular bear market while gold remains in its secular bull, the contrasting secular trends would align with a developing secular bear in equities,” he said.
As for risks, Hayes noted that rising bond yields pose the greatest threat to the long-gold/short-dollar trade. He explained that a widening spread between U.S. 10-year yields and those of other global bonds could lend support to the U.S. dollar.
U.S. bond yields have remained relatively elevated in recent months compared to the global trend, as the Federal Reserve has been reluctant to cut interest rates due to concerns about rising inflation pressures.
“If the trade war leads to relatively high inflation expectations in the U.S., a substantial increase in yields would be likely—widening the differential and potentially supporting the dollar,” Hayes said.
