Will Gold Prices Continue to Rise? A Time-Varying Analysis of the Dollar-Gold Nexus under Geopolitical and Economic Uncertainty

This study examines the dynamic interplay between the US Dollar Index (USDI) and gold prices (GP) to assess the sustainability of gold price trends. Employing a rolling window bootstrapping causality test methodology across full and sub-samples, the findings of this study challenge the conventional assumption of a stable long-term inverse correlation between USDI and GP, thereby validating the hypothesis that their relationship is nonlinear and time-dependent. During periods of heightened geopolitical and economic volatility, both the US dollar and gold function as safe-haven assets, with USDI fluctuations exerting a positive influence on GP. Conversely, under stable market conditions, the US dollar serves as the currency in which gold is denominated, resulting in a negative impact of USDI on GP. Notably, GP also demonstrates bidirectional causality, exhibiting both positive and negative effects on USDI. The analysis reveals that while a general inverse correlation persists between gold and the US dollar, this relationship transitions to positive during surges in global political and economic instability. In light of contemporary developments—including escalating geopolitical rivalries, tepid post-pandemic economic recovery, and elevated US interest rates driven by inflationary pressures—this study posit that the upward trajectory of gold prices retains a robust empirical foundation.