Stocks and USD Disconnect – Huge Implications for Gold and Commodities

Globe and Mail

14-04-2025

It was only a week ago when I wrote about the massive shorting opportunity in FCX – a copper/gold mining stock, and it moved right to my target area even though it seemed distant. Congratulations to everyone that participated in that trade (my subscribers took profits)! If that wasn't you – after the current rebound, we'll most likely have another epic opportunity to do the same.
However, in today's analysis, I'd like to point your attention not to copper but to something very important that's going under everyone's radar. It's the fact that the USD Index is moving back up while stocks continue to slide. I wrote about it to my subscribers, and in today's free essay, I'd like to let the broader audience also know about this situation, and what it likely means.
Precisely, I wrote about it on April 3 after both: stocks and the USD Index plunged. In addition to the above, we saw huge declines in: crude oil, copper, silver, and even gold.
In that text, I emphasized that the USD Index was the odd element on that list – it didn't match.
Now, even without looking at the charts, please take a moment to think if the a reminds you of any other time in history – those massive declines across the board. (hint: crude oil's slide is a good clue)
Well?
If you thought about 2008, you're right. This has the '2008' written all over it. All the above-mentioned markets declined at that time. (You might be thinking 'hey, the USDX rallied then', but I'll get to it shortly.)
The major fundamental problem that led to massive declines in many markets (for months – I'm not talking about a single-day declines) back then was related to the real estate market. The subprime crisis, Lehman's collapse and so on. This time we have tariffs, which might be reversed any day now, but… Given how far Trump already went with all this, and how little he has to lose (he won't get re-elected anymore, anyway), those tariffs might stay. And who knows – maybe he'll introduce some more? Apparently, he's either doing this for political reasons or due to his own approach/agenda – it's definitely not for the economic benefits of those decisions, at least not in the short- or medium term.
Let me show you something that was happening for a few weeks in mid-2008.
For a few weeks (marked with orange rectangle), stocks and USD Index declined together in 2008.
That's exactly what we've been seeing recently based on all-things-tariffs.
The USD Index even broke below its support line, and it moved very close to its previous yearly lows (without touching them). And THAT was where the HUGE rally in it started.
That was when the huge declines in the precious metals market started.
What do we have right now?
USD Index that just moved relatively close to its previous lows, but not quite to them. It also did that very close to the turn of the month, which is where its price tends to reverse. The RSI is extremely oversold as well.
So, yes, all those things suggested (as I wrote on April 3 that it was about time for the USD Index to disconnect from the stocks and start to move higher – perhaps in an explosive manner.
Before explaining why this is important, let me show you why the current situation is REALLY critical.
Exactly.
Once it's all said and done, and we're looking back at the crisis that's about to unfold now, we might compare it to 2008 and think that the latter was 'moderate'. And then we'll get back to counting our profits from all this commotion.
Remember that there's much more money floating around now there was in 2008, so the price swings are likely to be wider in both directions – prices were able to get way ahead of themselves simply because people had the money to keep on pushing prices to those extreme levels. But more inflated prices also mean that prices will have further to fall, as all those trades get reversed – when those, who bought panic and sell.
Some of the panic is already taking place.
Is this emotional selling? Yes, some say that all decisions to buy or sell are emotional. But the point is that it's not JUST emotional selling (and there is a good reason why searches for ' gold and silver IRA investment near me ' are booming). These trades have strong fundamental backing. Tariffs limit trade. They limit sales. They limit profits. And thus, they limit stock values.
Remember all those words that I wrote in the previous weeks about the possible stagflation? This all even more likely now. Limited imports mean higher prices for companies and (ultimately) consumers.
This time, the panic makes sense. Many will catch up with sales only after stocks decline much more – just like it was the case in 2008 and 2020.
Moving back to the disconnect between stocks and the USD Index – why is it so important?
Because declining and rising USD Index are both signals for commodities and precious metals. The fact that gold, silver, copper, crude oil, and other commodities declined on April 3 despite a 2% slide in the USD Index is extremely bearish on its own. The latter's decline 'should' make commodities soar. Seeing a small rally or no rally would be bearish.
But silver and crude oil were down by over 7%! This is epic. This is the first step to much bigger declines that will materialize once the USD Index finally does soar. And just as it seemed 'impossible' for the USD Index to rally at its 2008 (final) bottom, it may seem that this is impossible now.
Please look at the 2008 chart once again – yes, it IS possible.
USD Index and Tariffs – the Real (Bullish) Link
Right now media attention has focused primarily on potential inflationary impacts. However, substantial historical and economic evidence suggests these tariffs will likely strengthen the US dollar significantly in coming months.
The basic economic mechanism is straightforward: tariffs reduce domestic demand for imports, which decreases demand for foreign currencies needed to purchase those goods, while demand for the USD remains relatively stable.
Additionally, trade uncertainty typically triggers safe-haven capital flows into US assets, further strengthening the dollar.
Historical precedents strongly support this relationship. During Trump's 2018-2019 trade war with China, the dollar appreciated by 4% on a multilateral basis while tariff news explained approximately two-thirds of the renminbi's depreciation during that period according to this research paper. Similarly, during Reagan's targeted tariffs against Japanese imports in the early 1980s, the USD experienced one of its strongest bull markets, appreciating approximately 50% between 1980-1985. Even Bush's 2002 steel tariffs provided temporary support for the dollar during an otherwise bearish period.
Academic research further confirms this relationship, with an IMF working paper concluding that "on average, a 1 percentage point increase in tariffs leads to a 0.25-0.4 percent appreciation of the real effective exchange rate" after controlling for other factors. A comprehensive Federal Reserve Bank of New York study examining 151 countries over five decades found that increased import barriers consistently led to currency appreciation for the implementing country, with the effect magnified for reserve currencies like the USD due to their global financial role.
The relationship can be understood through simple analogies: imagine currency exchange as water flowing between connected tanks, with tariffs inserting a partial dam restricting outward dollar flow for imports. With reduced outflow but unchanged inflow, the dollar's value rises. Similarly, if the dollar is like a concert ticket to buy American goods, tariffs reduce the need for these "tickets" by foreigners (who buy fewer imports) while the tickets' desirability for investment and security remains intact, increasing their value.
Interestingly, unlike typical economic scenarios where tariffs might be offset by retaliatory measures, Trump's simultaneous application of tariffs across multiple partners potentially magnifies the dollar effect. While retaliation would normally dampen the currency impact, the broad-based approach makes coordinated responses more difficult and potentially less effective, leaving the dollar appreciation mechanism relatively intact despite international tensions.
The implications are significant: while much attention has focused on the inflationary impacts of tariffs, historical patterns and economic theory strongly suggest that Trump's new tariffs could provide substantial bullish momentum for the USD Index in the coming quarters, creating a more complex economic picture than many analysts currently recognize.
So… Why did the USD Index plunge now?
The markets are logical (as per the above-discussed research) eventually, but they are emotional in the short run.
The public's focus is now on the inflationary aspects and on the turmoil that it all causes. But the dust will settle. The economists and professional analysts (not only journalists that seek sensations) will write about this and the investors will re-evaluate their approach and position themselves accordingly.
As gold is viewed as an inflation hedge (incorrectly so, it's a hyperinflation hedge, but not one against regular, modest inflation), the emotional focus on inflationary aspect of tariffs cause people to buy gold and even mining stocks right now. This is all likely a temporary and emotional effect, while the powerful and dramatic 2008-style effects are likely to last / come into play.
This means a comeback of the USD Index, but a continuation of the decline in stocks. This means continuation of the declines and commodities (and perhaps even their acceleration) and decisive moves lower in case of gold, silver, and mining stocks.
Sure, we might see a correction here soon (and that's also an opportunity that we're aiming to take advantage of in my premium Gold Trading Alerts), but the bigger picture for the following months seems clear. And it doesn't look good for commodities or precious metals. Definitely not for junior mining stocks nor silver. Yes, I expect silver to soar well above it's 2011 high in the following years, but not without sliding substantially first. Remember – just because something is likely to happen eventually, it doesn't mean that it has to happen anytime soon, and something quite opposite might take placed temporarily. The good news is that this 'something opposite' can also be profitable if you just position yourself right.
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