Oil prices surge while gold prices plunge: Why are oil and gold prices moving in opposite directions?

Ask AI · How can the Middle East situation offset the dollar’s suppressive effect on oil prices?

The US Dollar Index breaks through 100. Under the influence of a strong dollar, oil and gold prices show a negative correlation with the dollar index, which would normally suggest a downward correction. However, recent market performance seems to display some anomalies.

As the dollar index surpasses 100, oil prices continue to rise sharply and are once again challenging the $100 level. Meanwhile, gold prices show signs of weakness, falling below the $5,000 mark and approaching $4,800, with expectations of returning to a bear market.

According to technical definitions, a bear market occurs when prices fall more than 20% from recent highs.

By the end of January 2026, international gold prices hit a record high of $5,626, then entered a high-level oscillation phase. Based on a 20% decline, $4,501 is the dividing line between bull and bear markets for gold. Only when gold prices effectively break below $4,501 will it truly be considered a technical bear market.

In the context of a strong dollar, gold prices weaken, which aligns with market expectations. As is well known, gold is an alternative asset to the dollar. When the dollar strengthens, investors prefer holding dollars, reducing gold’s attractiveness. Most importantly, gold prices had already risen significantly earlier, creating substantial profit-taking pressure. Plus, gold is a non-yielding asset, so when the dollar strengthens again, market funds naturally sell off gold.

Generally, gold and oil are negatively correlated with the dollar. However, in practice, the negative correlation between gold and the dollar tends to be more stable, while oil, although usually negatively correlated with the dollar, can sometimes deviate from this pattern.

Since March this year, international oil prices have continued to rise, reaching nearly $120 at one point. Although signs of a dollar rebound exist, factors influencing oil prices are not limited to the dollar index alone. Geopolitical tensions, supply and demand dynamics, and the global economic cycle also play significant roles.

Amid ongoing tensions in the Middle East and the persistent “disruption” of the Strait of Hormuz, oil prices have remained high. Additionally, several oil-producing countries have announced production cuts, further disrupting global energy supply and demand balance, which has supported oil prices.

When the dollar enters a new upward cycle, the impact on gold will be more pronounced, and emerging market equities may also face some pressure. As for oil, the key factor is changes in supply and demand structure. When global energy markets are in severe supply shortages, the relationship between oil and the dollar tends to weaken.

In the short term, oil prices remain high, and it is unlikely that the tight global energy supply and demand situation will see substantial relief soon. In the medium term, whether oil prices decline depends on the situation in the Middle East and the easing of tensions in the Strait of Hormuz. If global energy transportation routes are restored smoothly, the supply-demand tension will ease significantly, marking a true turning point for international oil prices.

“The fall of a whale gives rise to all things,” referring to the relationship between the dollar index and other asset prices. However, when the dollar index enters a new upward cycle, most global assets are inevitably affected to some extent, and valuation systems for mainstream assets will also be impacted.

The Federal Reserve’s decision to keep interest rates unchanged largely aligns with market expectations. Most importantly, current US inflation data still do not fully reflect the actual impact of high oil prices on US inflation. If international oil prices remain high over the coming months, US inflation pressures are expected to rise again. This would likely block the Fed’s room for rate cuts within the year, and global monetary policy expectations could also shift accordingly.

By 2026, the challenges for the global market may outweigh the opportunities. In the context of a strong dollar and high oil prices, the global market could face risks such as rising inflation, narrowing expectations for monetary easing, and declines in major asset prices. For investors, risk management awareness needs to be significantly enhanced, as the bull market mindset of 2024 and 2025 may not be suitable for the 2026 investment environment.

Author’s note: Personal opinions only, for reference.