I waited with today’s analysis as I was hoping something meaningful would happen on the markets, and I would have more to comment on – but this didn’t happen.
There is one thing that I’d like to discuss today. And it’s based on the comment that I received below one of my Gold Trading Alerts.
Namely, why / how is it possible that the precious metals market was up while the USD moved higher as well – and whether it implies anything right now.
That’s a very good question, because normally those markets move in the opposite directions. If they don’t, it could indicate the strength of the precious metals market that’s able to rally despite the headwind, or it could be due to some other reason.
The question, therefore, becomes if there is a good reason for this kind of behavior, and if so, is the action justified, and is it temporary or is it here to stay.
There were two notable events this week that happened this week that explain this kind of behavior.
The first of them is the release of Fed Minutes from the January 27-28 FOMC meeting, which came out on Tuesday at 2:00 PM ET. This was a genuinely hawkish surprise. Not "slightly less dovish than expected." Several participants supported language that would explicitly keep rate hikes on the table if inflation stays above target.
The committee held rates at 3.50-3.75%, as expected. But the internal division was the widest I've seen in this cycle. Members ranged from those favoring additional cuts to those openly discussing tightening. UBS economist Paul Donovan compared it to a Bank of England meeting, which, if you follow the BOE, tells you everything about the level of disagreement.
The economic data supported the hawks. December housing starts beat expectations at 1.40 million annualized (vs. 1.31M consensus). Core capital goods orders rose 0.6%, nearly doubling estimates. And today's initial jobless claims came in at 206,000, well below the 223,000 consensus. Treasury yields rose, with the 10-year climbing to 4.10%.
This is what pushed the dollar higher.
The second event was the escalation of US-Iran tensions. The White House stated on Tuesday that "there are many arguments for a strike on Iran" and that the sides remain "very far apart," despite a second round of indirect nuclear talks in Geneva. At least a dozen F-35s and F-18s are positioned within striking distance, a second aircraft carrier was dispatched to the Persian Gulf, and Iran's IRGC began war games in the Strait of Hormuz, a chokepoint that handles roughly 20% of global oil flows.
On top of that, Russia-Ukraine peace talks in Geneva collapsed after only two hours on the second day. Russia launched 29 missiles and 396 drones at Ukrainian energy infrastructure on the eve of negotiations. The EU is preparing its 20th sanctions package, timed for the war's fourth anniversary on February 24.
This is what supported gold (and silver) despite the dollar's strength.
Both moves are well-justified. The question is: which of these two forces is likely to persist?
I think the geopolitical bid in precious metals is temporary.
Geopolitical events, even serious ones, tend to create temporary spikes in gold rather than sustainable trends. During the 2003 Iraq invasion, gold spiked about 12% in the lead-up and then reversed once the operation began. During the 2014 Crimea annexation, gold rose roughly 15% and gave back most of those gains within weeks. The pattern has been consistent for decades.
The above examples show the phenomenon on a big scale, but the same works on a small scale.
Especially in the case of Iran, which fooled gold investors many times now.
The US-Iran situation has a timeline. The White House has reportedly given Iran until the end of February to present significant concessions. That means this uncertainty has an expiration date, whether it ends in a deal or military action. A deal removes the threat and the premium. A strike would likely generate a spike followed by a reversal once the initial shock fades, as has been the case with virtually every military action in recent memory.
On the other hand, I think the dollar's hawkish repricing is the more durable force. And this brings me to something I've been thinking about for a while, which I think is worth discussing in more detail.
There is a paradox in how the USD has been behaving relative to rate cuts that I think most investors are currently misreading.
Let me explain.
The DXY fell roughly 9.4% in 2025. That was one of its worst annual performances in years. The Fed cut rates three times (75 basis points total) between September and December. Traditional economics says rate cuts weaken the currency. And they did. But here's the thing: most of the dollar's decline happened before the actual rate cuts, not after them.
By the time the Fed started cutting in September, markets had already priced in the entire easing cycle. The DXY had been falling since spring 2025, driven by anticipation of cuts, tariff-related chaos, and concerns about Fed independence. When the cuts arrived, the dollar had already absorbed the dovish news.
The December rate cut, which came with the unusual 9-3 vote I've discussed in previous Alerts (one member wanted 50 basis points, two wanted no change), marked the beginning of dollar stabilization, not further weakness.
In January, the DXY briefly touched 95.5, a four-year low. Then it bounced. By early February, it was back above 97. And now, after the hawkish minutes, it's above 97.7.
What I think is happening here is something I'd describe as "exhausted dovishness." The market spent all of 2025 aggressively betting on dollar weakness. Fund managers reduced USD exposure to levels not seen since 2006. Every rate cut expectation was fully priced in. And when the Fed started signaling, through both the January hold and now these hawkish minutes, that the cutting cycle might be nearing its end (or that hikes are even on the table), there was simply no more downside left to price into the dollar.
This is important because it's the opposite of the narrative most gold bulls are still using. They're operating under the assumption that Fed rate cuts equal dollar weakness, which equals gold strength. In 2024 and early 2025, that framework worked. I think it stopped working in late 2025.
The surprise has flipped. The dovish scenario is fully priced in. Hawkish surprises (like these minutes) now have outsized upward impact on the dollar, while dovish data gets shrugged off. I think this asymmetry is likely to persist for some time.
There's another factor worth noting: the DXY's move higher this week was amplified by simultaneous weakness in the euro, the yen, and the pound, each driven by currency-specific factors. The euro fell after the Financial Times reported that ECB President Lagarde is expected to resign before her term ends, creating leadership uncertainty. This is another event supporting higher USD and gold prices at the same time – temporarily so.
The yen weakened after Japan's Q4 GDP came in at only 0.1% quarter-over-quarter (vs. 1.6% expected), barely avoiding recession. Sterling dropped after UK unemployment rose to 5.2%, its highest since early 2021.
These are three of the DXY's largest components (the euro alone is 57.6% of the index), and they all weakened for reasons that had nothing to do with the U.S. economy. That made the dollar's move look even more impressive, but the key driver, the hawkish repricing of Fed expectations, is what I'm paying most attention to. The currency-specific headwinds in the euro, yen, and pound could fade. The Fed's hawkish shift is stickier.
So to answer the original question: gold's resilience despite dollar strength this week is explained by geopolitical safe-haven demand, primarily the Iran escalation. I think that support is temporary. At the same time, the dollar's strength is explained by a structural shift in rate expectations that I think the market has not fully absorbed yet. If I'm right about this, it's the dollar's and stocks’ trajectories, not the geopolitical headlines, that will determine gold's direction over the coming weeks.
Thank you for reading today’s free analysis. I’ll continue to send you occasional updates and, as always, I’ll keep my Gold Trading Alert subscribers informed (also on insurance-, investment-, and trading-capital-based details) at all times.
Thank you.
Przemyslaw K. Radomski, CFA
Founder
Golden Meadow®
P.S. The above analysis is exclusive to Golden Meadow® and GoldPriceForecast.com.