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Gold May Follow Risk Currencies as Markets Consolidate

Gold May Follow Risk Currencies as Markets Consolidate

2011-10-10 02:36:00
David Liu, Technical Strategist
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The following table includes the correlation between gold and the most popular currency pairs over various timeframes. A value close to +1 indicates a strong positive relationship between gold and the pair, while a value close to -1 indicates a strong negative relationship. Colored values indicate week-to-week changes of over 30%.

---------------------------------------------------------------------------------------------------------------------------------

Gold

USD/CAD

AUD/USD

NZD/USD

EUR/USD

GBP/USD

USD/JPY

USD/CHF

3 Day 15 Min

-0.69

0.77

0.80

0.67

0.23

-0.45

-0.16

1 Week 60 Min

-0.15

0.03

-0.01

-0.16

-0.05

-0.43

-0.06

2 Week 60 Min

-0.61

0.57

0.71

0.27

-0.20

0.41

-0.37

1 Month Daily

-0.90

0.91

0.93

0.74

0.75

0.41

-0.79

Last week’s commentary can be found here.

Weekly Commentary: Following the heavy liquidation of both risky assets and gold in the previous weeks, gold’s new strong correlation with those risk assets such as the commodity bloc dollars and the Euro may continue to lead its direction. Gold’s correlation with the New Zealand dollar over the past week on a long term monthly basis has reached 93%, a high not seen since early June this year. Despite underlying risks still emanating from Greece and now the stronger members as leaders try to restructure and protect European banks, investors should keep in mind gold’s current risk correlation, and another possible drive towards liquidity and the US dollar.

Although technical indicators suggests a rebound in risk as those assets are still heavily oversold, gold and US dollar traders will be closely monitoring major data events in the United States, including FOMC minutes due October 11th at 1800GMT. Although the Board of Governors of the Federal Reserve unveiled “Operation Twist” during the September meeting, the market will monitor the minutes for any indications of another expansion of the Fed’s balance sheet which could result in another round of quantitative easing in the world’s largest economy.

Despite major fundamental events, the equity markets, risky assets and gold could continue to maintain its strong correlation in the coming week as the US dollar regains its liquid safe haven status. In the current market atmosphere amidst re-emerging European sovereign debt troubles and a slowing global recovery, gold is keeping its price characteristic as being inverse to dollar strength.

Fundamental Analysis: Gold Looks to Fed Reserve Meeting Minutes to Guide Price Action

Gold-Forex_Correlations_10102011_Gold_May_Rise_With_Risk_Currencies_as_Markets_Consolidate_body_Picture_1.png, Gold May Follow Risk Currencies as Markets ConsolidateGold-Forex_Correlations_10102011_Gold_May_Rise_With_Risk_Currencies_as_Markets_Consolidate_body_Picture_2.png, Gold May Follow Risk Currencies as Markets ConsolidateGold-Forex_Correlations_10102011_Gold_May_Rise_With_Risk_Currencies_as_Markets_Consolidate_body_Picture_3.png, Gold May Follow Risk Currencies as Markets ConsolidateGold-Forex_Correlations_10102011_Gold_May_Rise_With_Risk_Currencies_as_Markets_Consolidate_body_Picture_4.png, Gold May Follow Risk Currencies as Markets Consolidate

Written by David Liu, DailyFX Research

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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