The U.S. Dollar Stands at a Major Crossroads

The U.S. Dollar Index is testing a key technical level that has triggered major rebounds in the past—making this an important setup for commodities and precious metals investors to watch closely.

The U.S. dollar has fallen sharply since the start of the year, which has boosted commodity prices—especially metals like gold and silver—due to their inverse relationship. 

This decline stems from several factors, including a plunging stock market that triggered foreign capital outflows, rising recession risks and expectations of future interest rate cuts, and growing uncertainty over America’s new tariff policies. 

But after three months of steady declines, the dollar now finds itself at a key crossroads—one that will significantly influence its next move, as well as how commodities and precious metals respond from here.

The crossroads lies in the fact that the U.S. Dollar Index—a measure of the dollar’s exchange rate against a basket of major world currencies (not its domestic purchasing power)—is now sitting right at a major long-term support level around 100. 

This level has held for several years and has triggered significant rebounds in the past, including the most recent bounce in September 2024, which created a headwind for metals over the next few months.

How the U.S. Dollar Index behaves from here will have a major influence on the direction of commodities and precious metals. 

A decisive break below this level would likely open the door to a deeper decline — potentially into the low 90s or even lower — which would be highly bullish for commodities and could propel gold toward the $4,000 mark and silver to $40-$50+.

However, if the Dollar Index finds solid support at the 100 level, it’s likely to bounce — which would pose a headwind for commodities. That said, I believe gold, which remains in a strong uptrend, would likely consolidate and cool off rather than experience a sharp pullback. 

As a commodities investor and analyst, I closely monitor the U.S. Dollar Index, which—as the chart below illustrates—has maintained a long-standing inverse relationship with commodity prices:

You can also clearly see the inverse relationship between the U.S. dollar and gold:

And here is the inverse relationship between the U.S. dollar and silver:

Here’s a chart of gold over the past three years, showing the powerful bull market that has taken shape over the past year. 

How the dollar behaves from this point forward is likely to play a key role in shaping the next phase of gold’s rally.

As I see it, the U.S. Dollar Index is currently teetering on the edge of the key 100 support level — it could break lower into the 90s and weaken further, or rebound and push back into the 100s, recovering some of its recent losses. 

As of now, I’m waiting for the market to make its decision on the dollar and I’m not going to try to guess or predict what will happen as I prefer to take a reactive rather than predictive approach. 

It’s worth noting that the rising risk of a recession increases the likelihood of imminent Fed rate cuts, which would, in turn, put downward pressure on the dollar.

In the longer time frame, however, I am quite bearish on the dollar because of its current extreme overvaluation relative to other currencies, a phenomenon unseen in over 120 years of data except in 1933 and 1985—both periods followed by significant dollar declines. 

The dollar’s unusual strength in recent years has been a major factor keeping commodity prices much lower than they would ordinarily be. 

However, an impending correction in the dollar’s value should trigger a powerful bullish surge across the commodities sector, including assets like copper, gold, silver, and mining stocks.

A look at the long-term U.S. Dollar Index chart reveals that it has been trading within a rising channel since around 2008. 

I believe an eventual breakdown from this channel would be a key signal that the dollar is entering a new bear market—much like the one that occurred in the early 2000s.

I believe the coming dollar bear market will spark a powerful commodities supercycle — similar to the one that began in the early 2000s, when everything from copper to oil to wheat saw massive gains.

Further supporting this outlook is the extremely low valuation of commodities relative to U.S. stocks, as shown in the chart below. 

When this ratio reaches such extremes — as it has now — it often snaps back sharply, triggering major moves across the entire commodities complex.

Anyway, I just wanted to highlight that the U.S. Dollar Index is at a major crossroads right now. What it does from here—whether it breaks below the key 100 level and continues sinking, or bounces off that support—will have a significant influence on how commodities, especially gold and silver, perform in the near term. 

I want to emphasize that I’m not at all concerned about precious metals in the bigger picture, regardless of what the dollar does. But this setup is worth noting, as it’s likely to play an important role in shaping the next major market moves.

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