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Gold Correlations Point to Further Risk, Dollar Gains, Gold Losses Ahead

Gold Correlations Point to Further Risk, Dollar Gains, Gold Losses Ahead

2011-12-05 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

-0.44

0.27

0.52

0.19

-0.05

0.16

0.11

1 Week 60 Min

-0.86

0.85

0.90

0.73

0.68

-0.28

-0.48

2 Week 60 Min

-0.67

0.76

0.78

0.44

0.48

0.74

-0.59

1 Month Daily

-0.89

0.88

0.89

0.73

0.82

0.26

-0.60

Last week’s commentary can be found here.

Weekly Commentary: Correlations between gold and risky assets remain high for the fifth straight week, and gold retains its characteristic as being inversely connected to dollar strength. Because of the persistence of this correlation over the past month, demand for liquid havens, such as the US dollar, remains strong, pointing to investors hedging for a possible credit crunch. Accordingly, gold rose with riskier currencies this past week as central banks acted in a coordinated effort to pump dollars into the world economy to fill the increasing demand. Although gold is a safe haven asset in most situations and tracks dollar strengthen when markets look to protect their assets, previous correlations have shown a market preference for dollars, thus making the yellow metal a “risk” asset currently. This means in the event of another market shock, gold could be sold in tandem with other currencies as the market scrambles for dollars.

Despite the increase of liquidity on the market, investors will continue to monitor events coming from Europe. Although the Euro and commodity currencies were bid higher in early Asian trading as Italy proposed a EUR 30 billion austerity package, markets will look for December 9th’s EU leaders meeting to give any indications of support for the debt-laden periphery. Gold may also outperform major risk currencies this week due to central bank rate decisions from Canada, the EU, Australia and new New Zealand. Expectations for another .25% cut by the ECB and Reserve Bank of Australia hint could hint towards additional gains for the yellow metal against the Euro and the Australian dollar.

Also: Gold Snaps Two Week Losing Streak- Outlook Hinges on Europe

Gold-Forex_Correlations_12052011-Correlations_Point_to_More_Risk_Ahead_body_Picture_2.png, Gold Correlations Point to Further Risk, Dollar Gains, Gold Losses AheadGold-Forex_Correlations_12052011-Correlations_Point_to_More_Risk_Ahead_body_Picture_1.png, Gold Correlations Point to Further Risk, Dollar Gains, Gold Losses Ahead

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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