The first month of 2018 is behind us. It was exciting period for the gold market, as the shiny metal jumped again above $1,300. The two most important macroeconomic themes in January were the so-called Great Unwind of the central banks’ balance sheets and the weakening U.S. dollar.

In this edition of the Market Overview, we will focus on these key issues. First, we will examine what the Great Unwind implies for the U.S. dollar and gold. In a response to the Great Recession, the major central banks boosted their balance sheets. A decade later, there is a strong economic growth momentum, so we head into the Great Unwind. The tightening of monetary policy and higher interest rates could be negative for gold, but more hawkish BoJ and ECB would mean narrower divergence in monetary policies between the Fed and other major central banks.

Second, we will expand our analysis on the future of the greenback. In particular, we will answer the question of why the American currency has been falling like a stone recently, despite the Fed’s tightening cycle. We will also explore the historical bull and bear cycles in both the U.S. dollar and gold. As the yellow metal has a strong negative correlation with the greenback (and the usual relationship between the gold prices and real interest rates broke down temporarily), the trend in this currency is likely to be the vital driver in the gold market in 2018.