(Adds slug) Gold's rally on Tuesday is a concern for the many traders betting that the dollar rises, because stronger gold prices tend to precede drops in the dollar's value.

This was the case throughout the rally stemming from the trade war in 2025 from near $2,600/oz toward $5,600, until the rise in the price of gold became so severely stretched that it resulted in a drop. That fall met the target for a minor correction of gold's rise from near $1,600/oz in 2022 (38.2% at $4,073/oz) and alleviated the overbought conditions that led to the reverse.

Following a drop that has purged many of the investments in gold that were helping to stop it from rising further, the metal seems well-placed to resume a rally that seems logical amid conflicts in the Middle East and Ukraine that should support safe assets. Given the resulting spike in energy costs, an asset also deemed to be an inflation hedge could be eyed as an ideal investment.

Currency traders who have bought many dollars have seen little reward for their efforts. This heightens the chance of them paring risk. The dollar index has only gained around 3% during the establishment of the $42 billion net long, which is the second biggest bullish wager on record.

When the dollar fell almost 15% between February 2025 and January 2026, far fewer dollars were sold, with the net short less than half the size of the current long position. The dollar fell far more easily than it has risen this year and the resulting minor correction of the bigger slide could pave the way for a drop that is being signalled by gold's rally.
Gold


(Jeremy Boulton is a Reuters market analyst. The views expressed are his own)