Understanding Recent Dollar Strength, Technical Consolidation, and the Rationale Behind Our Strategic Precious Metals Allocation in Our KFSC Risk Managed Portfolios
Overview: Dollar Strength Creates Headwinds, Not Reversals
As of July 17th, 2025, the U.S. dollar has entered another short-term rally phase, buoyed by relative U.S. economic resilience, rising short-term Treasury yields, and global political instability. The U.S. Dollar Index (DXY) is trying to climb back towards its 109 level, its highest point in four months, and is currently trading near the 50-day moving average. This creates temporary resistance for gold prices, which have pulled back from their recent highs above $3,400 per ounce and are now hovering near the 50-day moving average.
However, while dollar strength presents short-term friction, we see no fundamental shift in Gold's long-term uptrend. At Keaney Financial Services Corp., we remain overweight physical Gold across our KFSC Risk Managed Portfolios. Let's get into the details:
The "Big, Beautiful Dollar" Is a Sign of Fragility, Not Strength
The dollar's strength does not reflect economic vitality but relative deterioration, like the" least dirty shirt" effect.
We are seeing the U.S. fiscal dynamics worsen:
- Debt-to-GDP stands at over 130%, with over $1.3 trillion in new issuance in the last 6 months alone【1】.
- Interest expense on U.S. debt has surpassed $1 trillion annually, now exceeding defense spending【2】.
- Foreign central banks steadily reduce their Treasury exposure, shifting toward Gold and non-dollar reserves【3】.
This dynamic creates a paradox, as short-term dollar strength often precedes medium-term gold outperformance, global investors seek hard asset safety amid long-term U.S. fiscal instability.
We Believe Gold Is Technically Consolidating, Not Breaking Down
Gold's recent pullback is technically healthy. After a breakout above $3,400 in late Q2, the metal is:
- Consolidating around its 50-day moving average ($3,180–$3,362)
- Holding support levels above previous breakout zones from Q1
- The trading view chart below shows sustained upward momentum on a 6-month trend basis (up 27.04% YTD).
We see this consolidation as a buyable pause, especially when paired with seasonally strong demand in Q3 and Q4.
Real Rates and Liquidity Conditions Still Favor Gold
While nominal yields have ticked up, real rates appear to have peaked:
- Core PCE is running at 2.8% YoY (next release 07/30/2025), while 10-year real yields (inflation-adjusted) remain near the 2.0% range, suggesting tightening pressure subsiding【4】. Core PCE measures prices of goods and services purchased by consumers (it excludes food and gas/energy).
- Futures markets are now pricing in at least one Fed rate cut by Q4 2025【5】.
- Central banks, particularly those in the BRICS (Brazil, Russia, India, China, South Africa), continue to buy Gold aggressively as part of reserve diversification strategies【6】.
When real rates fall, or expectations for easier policy rise, Gold tends to respond positively, a key reason we maintain our overweight allocation.
The Gold–Silver Ratio Supports Selective Precious Metals Exposure
Update to the financial commentary posted - 05/09/2025 - Why the Gold–Silver Ratio Signals a Silver Investment Opportunity in 2025
As seen in the chart below, Sprott Physical Silver Trust (PSLV) has increased 17.21% since our last post, when we discussed the Gold-Silver Ratio being above the estimated 100 level.
The current Gold–Silver ratio is 87.62, well above the historical average of 65:1【8】. This dynamic supports a relative value argument for physical silver trust, which we hold in allocations across our conservative, moderate, and moderate growth models.
- Silver's industrial demand from EVs, solar, and electronics remains structurally strong【8】.
- Mining supply remains constrained, creating a long-term tailwind. Simply put, prices are higher over time when supply doesn't keep up with demand from investors, central banks, or industries needing silver.
- However, given rising macro uncertainty, Gold retains a superior monetary premium and downside protection.
Gold is a Strategic Asset, a Store of Wealth, a Universal form of Money, not a Tactical Trade
Gold is not merely a hedge but a strategic core asset for risk-managed portfolios. It serves four key functions:
- Monetary hedge against currency debasement and fiscal deterioration
- Non-correlated volatility dampener during equity drawdowns
- Real asset alternative to fiat cash, particularly amid declining real yields
- Global liquidity proxy in an increasingly fragmented economic order
Gold is a Store of Wealth and is one of the world's most enduring. Here are its key properties:
- Durability and Indestructibility: Gold does not tarnish, rust, or decay. The majority of all the Gold ever mined still exists today.【9】
- Scarcity and Finite Supply make Gold special and explain why it retains value. The gold supply can't be easily manipulated like fiat currencies, which can be printed by government decree. Gold has a slow and natural inflation as the costly yet predictable mining process restricts it. This prevents it from the devaluation we see in fiat currencies.【10】
- No Counterparty Risk: Physical Gold holds intrinsic value and is not dependent on the creditworthiness or performance of any institution. Unlike stocks, bonds, or bank deposits, it carries no promise to pay from another party.【10】
- 5,000 Years of Monetary Integrity: Whether it's ancient coins or modern reserves of central banks, Gold has served as a reliable benchmark of value for centuries. It has a long history of fostering deep global trust, and it is seen today as countries move to repatriate Gold back into their countries, taking it away from the bullion exchanges.【11】
Gold is a Tier 1 Asset under (BIS & Basel III)
- Under Basel III regulations, coordinated by the Bank for International Settlements (BIS), physical Gold is classified as a high-quality, Tier 1 asset, placing it on par with cash and government bonds regarding banking standards. 【12】In simple terms, this means that for regulatory purposes, physical Gold is treated like cash or U.S. Treasuries. It's considered a Tier 1 asset with no haircut (0% risk weight under bank capital rules), meaning banks can count its full value when assessing financial strength.【12】【13】【14】For these reasons, we view Gold as "Not an Investment, but a Form of Non-Printable Cash" as Gold combines the liquidity of cash with the resilience of hard assets. It can be converted globally within seconds and functions as a stable, non-sovereign monetary reserve, independent of any central bank or fiat regime.
At Keaney Financial services we prioritize direct, personal communication. We DO NOT communicate through text or email. Whether you're an existing client or a new investor seeking a fresh perspective and a more risk-managed approach to investing and asset allocation, we request you to reach out by phone to discuss your specific situation or any financial topic of interest.
To learn more about why we take these precautions, please read the financial commentary posted on July 14th, 2025, titled: The Biggest Financial Threat In 2025
Sources
- U.S. Treasury Department – Total Public Debt and Auction Schedules, Q2 2025
- Congressional Budget Office – Interest Expense Projections, May 2025
- World Gold Council – Central Bank Gold Trends, April 2025
- FRED – Core PCE Index, July 2025
- CME FedWatch Tool – July 2025 Rate Cut Probabilities
- IMF and BIS Reserve Data, compiled via Bloomberg Terminal
- TradingView – XAU/XAG Ratio Historical Chart
- Silver Institute – 2024 Silver Demand and Outlook Report
- World Gold Council - www.gold.org
- Hero Bullion - www.herobullion.com
- Focus Economics - www.focus-economics.com
- Granite Shares - www.graniteshares.com
- Global Regulation Tomorrow - www.regulationtomorrow.com
- USFunds - www.usfunds.com
Disclosure & Disclaimer
The content provided in this commentary reflects the opinions of Keaney Financial Services Corp. as of the publication date. It is intended solely for educational and informational purposes. It should not be construed as individualized investment advice, a solicitation to buy or sell any security, or a recommendation for any particular investment strategy. All views are subject to change without notice based on evolving market, economic, or political conditions. While we strive to ensure accuracy, the information presented is based on sources believed to be reliable, but we make no guarantee as to its completeness or accuracy.
The opinions shared herein are those of our advisors and are not intended to represent the position of any regulatory agency, organization, committee, group, individual, or third-party institution. Consult your qualified financial, legal, or tax advisor before making investment decisions.
Risk is an inherent aspect of all investment activities, and investors must recognize that no investment is entirely free from risk. Although important, asset allocation, risk management, and diversification strategies do not guarantee generating profits or shielding against losses.