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US Dollar, Gold, Silver Price Analysis: Cross Asset Correlation

US Dollar, Gold, Silver Price Analysis: Cross Asset Correlation

2020-07-23 09:30:00
Justin McQueen, Analyst

US Dollar, Gold, Silver Price Analysis & News

  • Liquidity in Abundance with Cross-Asset Correlations Elevated
  • Silver in the Roaring 20s, Gold looks to Record High
  • Trend Continuation in Cross-Assets as Volatility Drifts Lower

Liquidity in Abundance with Cross-Asset Correlations Elevated

As liquidity stemming from monetary and fiscal policy remains rife, cross-asset correlations are elevated, most notably this has been evidenced by the continued strong relationship between equity and FX markets. As market volatility drifts lower, high beta currencies have taken its cue from the pick-up in equities, which has largely come to the detriment of the US Dollar. As we highlighted yesterday, the negative relationship between the US Dollar and stocks is its strongest in several years. Put simply, the longer equity markets edge higher, the longer the downtrend in the greenback.

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Silver in the Roaring 20s, Gold looks to Record High

The precious metals complex has gone from strength to strength with a significant rally observed in silver, having hit $23 with gold eyeing $1900. While the weakness in the greenback has aided the precious metals complex, we still feel that the dominant driver has been the plunge in real yields (now at 8yr lows), which is further underscored by a firm relationship between real yields and precious metals.

Real Yields Driving Precious Metals Higher

US Dollar, Gold, Silver Price Analysis: Cross Asset Correlation

Source: DailyFX

Trend Continuation in Cross-Assets as Volatility Drifts Lower

A relatively quiet affair for today’s session given the lack of key economic data. As such, while mounting tensions between the US and China has prompted small bouts of volatility, the absence of a material escalation will likely see cross-assets maintaining its current trend. Elsewhere, the EU and UK will provide an update on the latest round of trade negotiations. However, with UK press reports signalling that talks are at an impasse, we expect the rhetoric to remain downbeat. Although, this has yet to discourage GBP, which trades well against the USD, having hovered above 1.27 and thus keeps resistance at 1.2812 in focus. That said, we struggle to see GBP/USD moving firmly above 1.2800 unless tangible progress in trade talks have been made.

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