Emerging-Market Currencies Diverge From Gold on Trump Haven Bid
Gold and emerging-market currencies — two assets that typically move in the same direction against the dollar — have been diverging as investors prepare for Donald Trump’s return to the US presidency.
The 30-day correlation between the precious metal and the MSCI Emerging Markets Currency Index has turned the most negative in almost three years, according to data compiled by Bloomberg. During this period, the correlation between the two has been positive at daily closing levels 86% of the time, and this is only the fifth time in the past three years that the relationship has turned negative on a 30-day basis.
The run-up to Trump’s inauguration has sparked strong demand for the dollar, sending it to the highest level in more than two years as investors prepare for an overhaul of US economic policy. The flip side of that is a risk-off slide in assets such as emerging-market currencies, while gold has sidestepped the dollar bid thanks to its status as a haven and inflation hedge.
“Markets are trying to feel their way to a new normal that will prevail under Trump – but there is not a whole lot of certainty around what that should look like yet,” said Nick Rees, a senior analyst at Monex Europe Ltd. in London. “Gold is likely to do well, even as expectations for higher-for-longer US rates weigh on EMFX.”
The EM currency index enters the new year in its longest streak of weekly losses since September 2022. Meanwhile, gold capped its biggest annual rally since 2010 and is consolidating above $2,650 per troy ounce. In a note last year, Goldman Sachs forecast the metal would hit $3,000 in 2025, bolstered by US rate cuts, steady demand from central banks, and Trump’s tariffs on trading partners.
“If you are worried about a trade war with the US, buying gold right now would be a good idea, particularly for China,” Rees said.
