Gold, a traditional safe-haven asset, often shows a negative correlation with the strength of the U.S. dollar's credit. When market confidence in dollar credit wavers, investors turn to gold as a store of value, pushing prices higher. Dollar credit is reflected not only in the currency itself but also in U.S. Treasuries, both closely tied to fiscal policy. Historically, since the 1980s, U.S. fiscal conditions have gone through different phases. From the early Reagan administration to before the Iraq War under George W. Bush, the fiscal deficit was relatively well controlled. During the Clinton years, the U.S. even ran a surplus. In that period, gold prices trended weakly, correlating with deficit control and surplus. However, after entering the 21st century, the U.S. adopted looser fiscal policies, leading to persistent deficits. Although deficits narrowed between 2011 and 2016, the overall fiscal situation did not fundamentally improve. Gold prices fell somewhat from 2011 to late 2015 but remained in an upward trend overall.
This correlation between gold and dollar credit reflects market concerns about economic stability and currency value. In times of uncertainty, gold as hard currency gains market recognition and demand. Therefore, when analyzing gold price trends, investors should closely monitor U.S. fiscal policy and changes in dollar credit, as these factors can significantly impact gold.
(Source: London gold price and U.S. monthly fiscal deficit MA12) (Source: Macro Micro)
Historically, when the U.S. fiscal deficit expands—especially when financed by issuing more Treasuries—it can pressure dollar credit, boosting demand for gold as a safe haven and pushing prices up. Additionally, if the U.S. economy faces recession risks, investment demand for gold may rise, as gold is often seen as a safe asset during economic uncertainty.
In recent years, global central banks—particularly in emerging markets—have increased gold purchases to diversify reserves and hedge currency risk. This reflects concerns about dollar credit and support for the "de-dollarization" trend, further strengthening gold's role as a store of value.
However, gold price volatility is influenced not only by U.S. fiscal conditions but also by a mix of factors including global economic conditions, monetary policy, inflation expectations, and geopolitical risks. For example, geopolitical tensions and trade frictions can boost safe-haven demand for gold, pushing prices higher. Meanwhile, if the market expects the Fed to cut rates, the opportunity cost of holding gold decreases, positively affecting prices.
Notably, the relationship between gold and the dollar is not always inverse. In some cases, such as after 2019, gold and the dollar rose together, suggesting that the market may demand both as safe havens.
(Source: Macro Micro)
Gold's Return Surpasses Treasuries for the First Time in Over 50 Years
(Source: Bloomberg)
Kristina Hooper, Chief Global Market Strategist at Invesco, said the divergence between these two traditional safe-haven assets reflects deep investor concern about surging U.S. government debt and a growing preference for physical assets.
"The safe-haven asset of choice has become gold, not U.S. Treasuries," Hooper said. "The bigger theme is concern about the massive U.S. debt and the unsustainability of U.S. fiscal conditions."
This divergence means gold has outperformed U.S. government debt as a long-term investment. $1 invested in gold 51 years ago is now worth $2,504, $170 more than the return from the Bloomberg U.S. Treasury Index (2,334), which launched in 1973. (This comparison does not account for gold storage costs.)
The phenomenon is mainly driven by investor concerns about the U.S.'s growing debt and fiscal unsustainability, along with a preference for physical assets. Meanwhile, global central banks—especially the People's Bank of China—have increased gold purchases and reduced holdings of U.S. Treasuries, reflecting worries about dollar credit and the "de-dollarization" trend. Additionally, geopolitical uncertainties such as the Russia-Ukraine conflict, and the Fed's aggressive rate hikes causing bond prices to fall, have prompted investors to view gold as a safer haven.
Risk disclaimer: This content is for reference only and does not represent any investment advice. Market risk exists; invest with caution.
On investment analysis, market insight, and asset allocation — not chasing short-term noise, but understanding what truly drives long-term returns.