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Gold Takes Queue on Fed While Risk Trends Respond to ECB

Gold Takes Queue on Fed While Risk Trends Respond to ECB

Gary Kerdus,

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

0.6

-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

-0.52

-0.85

-0.61

0.96

0.94

-0.35

-0.95

Weekly Commentary: Gold correlations with major currencies have been relatively mixed over the last twenty days of trading partly due to the lack of market participation as traders were away for the summer, and partly because the Fed’s chief, Ben Bernanke, said the central bank is willing to provide monetary support as needed. Traders took queue and bought up the precious metal even as other risk–linked assets, like the S&P 500, were left little changed. Sentiment-linked currencies, such as the Australian Dollar, broadly sold with US equities while gold likely rallied on dollar-dilution speculation causing the Forex-to-Gold correlation to somewhat breakdown.

Later today U.S. Non Farm Payroll is scheduled for release and Bernanke specifically voiced concern over the slow job creation throughout the economic recovery. Traders should have their scopes pointed towards the jobs data as a sour print may influence policy makers to stimulate. The next opportunity for another round of QE implementation could take place on September 13 when policy officials announce their rate decision and subsequently speak to the press.

Risk-Trends as they relate to higher yielding FX pairs have taken particular notice, over the last 24 hours of trading, to the European debt crisis and the ECB’s supposed willingness to provide unlimited relief to the region's debt strapped nations, which broadly fuelled market sentiment to take on more risk.

20 Day Rolling Correlation Graph:

Gold_Takes_Queue_on_Fed_While_Risk_Trends_Respond_to_ECB_body_Picture_1.png, Gold Takes Queue on Fed While Risk Trends Respond to ECB

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

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