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Gold Traders Appear to have Priced in Additional QE

Gold Traders Appear to have Priced in Additional QE

2012-08-28 06:05:00
Gary Kerdus,
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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.

Gold vs:

USD/CAD

AUD/USD

NZD/USD

EUR/USD

GBP/USD

USD/JPY

USD/CHF

3 Days

0.02

-0.34

-0.31

-0.25

-0.35

0.46

0.23

1 Week

0.60

-0.62

0.03

0.74

0.46

-0.83

-0.75

2 Week

-0.95

0.88

0.93

0.92

0.95

0.91

-0.92

1 Month

-0.40

-0.58

-0.03

0.86

0.86

0.10

-0.86

Weekly Commentary: Gold correlations with major currencies have reversed from positive to negative as markets appear to have priced in another round of quantitative easing which could be possibly introduced by the Fed later this week on Friday during the Jackson Hole Economic Symposium. Jackson Hole is important as QE2 was introduced during the 2010 gathering. On Wednesday of last week gold speculators bought up the precious metal when the Fed released their minutes from the August 1 meeting, hinting that another round of easing may be on the way.

Markets have had a tendency to equate additional QE as dollar-dilutive and have subsequently responded by acquiring the metal as an effective hedge against greenback weakness.

Meanwhile, overall market volumes have been extremely low in other risk-linked assets such as stocks and higher yielding currencies. It’s still not clear as to whether gold will go back towards following risk-sentiment trends once market activity picks up. Friday’s outcome, whether QE supportive or not, could prove to be the catalyst the markets have been looking for, likely stoking market participation across most asset classes.

Gold_Traders_Appear_to_have_Priced_in_Additional_QE_body_Picture_7.png, Gold Traders Appear to have Priced in Additional QE

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