Since 1990, there have only been 7 times! The US dollar fell, and gold surged

Since the beginning of this year, gold prices have risen by 27%, while the US dollar index has fallen by 9%.

According to news from the Chasing Wind Trading Desk, a recent research report by Morgan Stanley analyst Amy Gower and her team shows that the negative correlation between gold and the US dollar index has reached an astonishing -96% this year, a level of negative correlation that has only occurred seven times since 1990.

More importantly, this extreme correlation is often accompanied by extraordinary performance in gold prices. If this correlation continues, combined with the bank's forecast that the US dollar index will fall to 91 in the second quarter of 2026, gold prices could reach $3,800 per ounce.

Historically Rare Strong Negative Correlation

Data from the report shows that over the past five months, gold and the US dollar index have exhibited a -96% inverse correlation, far exceeding the average level of -39% since 1990.

Since 1990, there have only been seven periods where the strong negative correlation exceeded -95%, making the current situation a historically rare phenomenon.

The report points out that during these periods of strong negative correlation, the five-month rolling return of gold averaged 8%, significantly higher than the overall average level of 3% since 1990.

Moreover, during these seven historical periods, five periods showed a pattern of a falling dollar and rising gold, with gold often supported by ETF inflows, safe-haven demand, and central bank purchases.

From 2025 to now, gold has risen by 27%, while the US dollar index has fallen by 9%, with strong central bank purchases and ETF fund inflows providing support for gold prices.

Morgan Stanley expects that due to the convergence of interest rates between the US and other regions and the rise in US dollar risk premium, the US dollar index will fall to 91 in the second quarter of 2026. Based on the current correlation between gold and the US dollar index, this forecast implies that gold prices could reach $3,800 per ounce, higher than Morgan Stanley's previous target price of $3,500 per ounce (for the third/fourth quarter of 2025).

Historical "Negative Correlation" Duration is Short, Current Gold Demand Structure is Divergent

The report also adds that although strong correlations historically indicate rising gold prices, these periods typically last for a shorter duration, with the longest historical instance lasting 44 days in 2007 (while the current one has only lasted 9 days). **

Similar to 2007/2008, these periods typically mark recent peaks in gold, indicating that the recent range-bound fluctuations are a normal phenomenon.

From the perspective of demand structure, the trajectory of ETF fund inflows will be crucial.

The report states that recently, due to competition from other asset classes (especially stocks), inflows into gold ETFs have slowed. At the same time, jewelry demand in the first quarter has fallen to its weakest level since 2020, and it remains to be seen whether consumers will adapt to higher prices and drive a rebound in demand.

Meanwhile, central bank purchases continue to maintain strong momentum, providing bottom support for gold prices.