Dollar Index Breaks Lower, Fueling Short-Term Gold Rebound

The U.S. Dollar Index (DXY) continues to trend downward, triggering a return of speculative capital to emerging markets and supporting a short-term rebound in gold prices from $3,247 to above the $3,300 level. To be clear, this move is not driven by risk aversion or panic—it is a technical rebound. Investors should remain cautious and avoid overly optimistic expectations for gold simply due to a weaker dollar. Our medium- to long-term outlook remains unchanged.

(Chart 1: Dollar Index Down 10.7% YTD; Source: The New York Times)

The dollar has fallen over 10% year-to-date, with markets largely attributing the weakness to tariff-related policies under former President Trump. The logic is as follows: higher tariffs may reduce imports, which in turn leads to fewer dollars being paid to overseas companies. This reduces the recycling of dollars back into U.S. assets such as Treasury bonds—a core reason behind the decline in the dollar that markets are pricing in.

However, we place greater emphasis on how macroeconomic data affects risk assets. In Q1, U.S. imports surged—particularly in durable goods, home appliances, and apparel—according to the U.S. Department of Commerce.

Leading U.S. retailers such as Walmart and Target noted in their Q2 2025 earnings calls that current inventory levels are sufficient to meet year-end demand. Management also emphasized that supply chains have normalized and there is no need for precautionary restocking. This raises the possibility that the peak manufacturing season may fall short of expectations.

If end-user demand weakens, inventory liquidation could follow, pressuring risk assets into a corrective phase. Once the following four bullish catalysts are fully priced in, investors should adopt a more defensive stance.

Four Key Bullish Catalysts:

• The “Big and Beautiful” bill passes Congress on July 4

• Reciprocal tariffs finalized with the U.S.s top 10 trade partners

• Fed Chair Powell cuts interest rates

• The Russia-Ukraine war officially ends

We believe the fourth item is already partially priced in, diminishing its upside impact. The first three factors may represent the final leg of the rally for risk assets.

Looking ahead, macro and industrial developments may support a stronger dollar. The tariff-based logic outlined earlier may not hold water in the long run.

Even if the “Big and Beautiful” bill increases fiscal deficits, a resilient end-market demand may lead to stronger tax revenues, enabling the Treasury to manage debt more effectively. A narrowing trade deficit would further support the dollar, though this argument has yet to gain widespread traction in the market.

In macroeconomics, opposing narratives coexist. Markets often respond to linear narratives, which skews investor interpretation and leads to repeated misjudgments—making small profits while taking large losses.

Technical Outlook: Gold

Building on our previous analysis, gold has corrected $300 from recent highs and bounced $100 (roughly 30%), which is a reasonable retracement. Currently, we are watching two key resistance levels at $3,325 and $3,350. A failure to break through these levels would signal a continuation of the downtrend. Investors should maintain a bearish bias and avoid attempting short-term counter-trend trades.

• Support: $3,247

• Resistance: $3,325 / $3,350

• Risk Disclaimer: The above viewpoints, analysis, research, price references, or other information are provided for general market commentary and do not represent the position of this platform. Readers should assume all risks associated with their investment decisions. Please trade with caution.