Cathie Wood warns gold rally may reverse if dollar strengthens
ARK Invest CEO Cathie Wood warned that the recent parabolic gold rally may be near a late-cycle extreme and vulnerable to a pullback if the US dollar strengthens. Wood cited the gold-to-M2 ratio hitting historic highs — surpassing levels seen in 1980 and 1934 — as a valuation “flash warning.” She noted the US economy is not in runaway inflation or deflation, and highlighted that the 10-year Treasury yield has fallen from near 5% in late 2023 to about 4.2%, arguing fundamentals do not fully justify gold’s spike. Wood referenced the 1980–2000 period when a stronger dollar coincided with a prolonged gold decline, suggesting a similar dollar resurgence could unwind the current rally. Critics dispute Wood’s framework: some macro traders say M2 is a less reliable metric post-QE and digital finance. Robin Brooks (Brookings/former Goldman Sachs FX strategist) challenged the narrative that central bank buying is behind the rally, noting IMF data show no spike in official-sector gold volumes and arguing recent gains look more like retail speculation than institutional accumulation. During publication, spot gold had pulled back roughly 2.6% from an ATH of $5,595.46 to about $5,232.81 per ounce. Key takeaway for traders: monitor dollar strength, 10-year Treasury yields, and official-sector buying data; a stronger dollar or declining retail momentum could trigger a sharper gold correction.
Bearish
The report increases downside risk for gold prices. Cathie Wood’s valuation warning (gold-to-M2 at historic highs) combined with the possibility of renewed US dollar strength creates a plausible catalyst for a correction. Traders should watch three market signals: dollar index moves, 10-year Treasury yields, and official-sector gold reserve flows. If the dollar rallies — as it did in the 1980–2000 period cited by Wood — it historically pressured gold and could trigger rapid de-risking by leveraged retail traders who drove recent gains. Robin Brooks’ note that central bank volume has not spiked suggests recent gains are less structurally supported, raising the probability of a retail-driven reversal. Short-term impact: elevated volatility and a likely pullback, offering shorting or hedging opportunities. Long-term impact: if central banks begin sustained accumulation or inflation/real yields change materially, gold could resume an uptrend; absent that, structural upside is limited. Overall, near-term bias is bearish until demonstrated institutional buying or weaker dollar/declining real yields re-emerge.