Gold and the U.S. Dollar Paradox: Cyclical Volatility in a Secular Repricing of Monetary Assets

AI desk brief

Sprott says June’s 11.7% gold selloff to $4,008.02/oz was a classic dollar-driven waterfall decline, with the metal posting its worst monthly drop since October 2008 and worst quarter since Q2 2013. The move was amplified by CTA/quant deleveraging, weaker sovereign-related buying, and a hawkish read on new Fed Chair Kevin Warsh’s comments, alongside a 2.91% YTD rise in the DXY and a 70 bps rise in U.S. two-year yields.

The piece argues the short-term pressure may already be largely priced in: gold fell below its 200-day moving average for the first time since October 2023 and is now described as deeply oversold, with a 26% drawdown, the largest in a decade. Sprott also frames the recent weakness as consistent with prior extremes where gold found support near 90% of its 200-day moving average. The note links the stronger dollar paradoxically to longer-term support for gold, as reserve managers diversify away from USD over time.

For silver, Sprott keeps a constructive longer-term view on persistent structural deficits, stronger industrial demand, and a rising monetary role. Near term, the desk takeaway is that dollar strength and higher front-end yields remain the main headwinds, but the magnitude of the June liquidation raises the odds of stabilization or a reflex bounce if USD momentum stalls or macro positioning resets.