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Gold Follows Commodity Currencies, Decouples from Euro as Peripheral Woes Persist

Gold Follows Commodity Currencies, Decouples from Euro as Peripheral Woes Persist

David Liu, Technical Strategist

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

-0.29

0.06

-0.27

-0.09

0.14

-0.12

0.06

1 Week 60 Min

-0.65

0.61

0.54

0.53

0.50

0.25

-0.53

2 Week 60 Min

-0.79

0.44

0.75

0.45

0.51

0.87

-0.42

1 Month Daily

-0.46

0.81

0.89

-0.45

-0.29

-0.45

0.18

Gold-Forex Correlations for the previous week can be found here.

Weekly Commentary: Gold correlations with major currencies pairs have taken an interest turn since our last update, when gold prices were seen to have the greatest connection between the strength of riskier currencies against the US dollar. Although the commodity currencies Australia, New Zealand and Canadian dollars are still at their near-record correlations with gold, the trend between spot gold and the EURUSD pair has broken down.

Although in an overall market context investors continue to prefer the liquid US dollar as a haven against possible economic slowdowns, European investors are seen to have increasing affinity for gold as well. As gold is a natural inflation hedge, this shift could point to concerns over additional ECB balance sheet expansions.

Gold and dollar pairs performance will largely hinge on this week’s FOMC meeting, scheduled on January 25th at 1730GMT. Although the Central Bank is widely expected to keep its benchmark lending rate at 0.25%, recent US economic performance could suggest a foreseeable end to these record low rates. Any comments suggesting tightening in the future may hurt gold’s performance in the latter part of the week, although prices may be buoyed by continued European-led risk buying following the failure of this weekend’s Greek private sector involvement negotiations.

Gold-Forex_Correlations_01232012_Gold-Follow-Risk-Anti-Euro_body_Picture_1.png, Gold Follows Commodity Currencies, Decouples from Euro as Peripheral Woes PersistGold-Forex_Correlations_01232012_Gold-Follow-Risk-Anti-Euro_body_Picture_2.png, Gold Follows Commodity Currencies, Decouples from Euro as Peripheral Woes PersistGold-Forex_Correlations_01232012_Gold-Follow-Risk-Anti-Euro_body_Picture_3.png, Gold Follows Commodity Currencies, Decouples from Euro as Peripheral Woes PersistGold-Forex_Correlations_01232012_Gold-Follow-Risk-Anti-Euro_body_Picture_4.png, Gold Follows Commodity Currencies, Decouples from Euro as Peripheral Woes Persist

-- 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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