Most of the time, gold is inversely correlated to the US dollar.
The problem with such analysis is that frequency does not mean amplitude.
The above chart proves that point.
Tweet Inspiration
Gold Eagle
That Gold Eagle Tweet inspired this post.
My chart seems contradictory. And I set out disagree.
Ironically, upon further investigation, I believe Gold Eagle is correct, for now.
I am working on some additional charts and fundamentals to explain why.
For now, let’s just say it’s important to understand that movements in the dollar do not explain movements in gold.
If dollar movements explained gold, the gold would not be at $1480.
Mike “Mish” Shedlock
The US dollar is just one of several important macro-economic drivers of the gold price, and which drivers the market is focused on depends entirely on contingent circumstances. One correlation that has been very strong in recent years was the negative correlation between gold and real interest rates (the latter as represented by TIPS yields, which incorporate market-derived “inflation expectations”). As others have already remarked, in recent years both gold and the dollar frequently seem to have benefited from the perception that they are “safe haven” currencies.
Agree.
The Gold price (in $USD) has correlated quite well with the amount of sovereign debt trading with negative yield-to-maturity.
Interesting. I found this article saying the same thing.
https://www.kitco.com/commentaries/2019-10-07/Gold-it-s-all-about-real-rates-not-the-dollar.html
Any two randomly moving independent variables, will at times appear correlated, and at other times not. The only thing constant, is that none of it means, nor signifies, anything. Ever.
I see this comment coming up from time to time.
(smile)
Since gold and the dollar are neither independent variables, nor do they move randomly, I don’t understand your point.
Gold has been correlated with the dollar because they are both risk-off/safe-haven trades in this risk-off/risk-on back and forth.
That will likely eventually be eclipsed by a level of fiscal and monetary diarrhea that will turn the correlation negative.
That won’t occur until after the rising dollar blows up sovereign balance sheets.
Interestingly, I will soon be travelling to a country experiencing a US$ shortage. I will attempt to buy an ounce of gold in the local currency (which is pegged to the US$). If the local currency is not accepted, will gold be sold at a discount for US$ cash? This sort of action may explain why demand for dollars AND gold may move in parallel
In the world of fiat currencies, I would propose elements of the following. Human beings want confidence and security, which explains gold’s status over this time period as governments ramp up the debt machine. The dollar also represents confidence and security on multiple fronts – it represents open capital markets, liquidity, political stability, rule of law (relative), military presence/power, technological innovation, and probably a number of other factors. That’s not to say that the US doesn’t have enormous or even unsustainable problems, its just that our problems on a relative scale are not a “problematic” as what we see with other power centers (e.g. EU, China, Russia, India). Humans go with what they trust—hence in a world of increasing instability and uncertainty, people have to go somewhere and that somewhere is gold and King dollar.
As a sterling based investor I have to buy Dollars to buy gold. (unless I borrow them of course). If the seller of the Gold I buy reinvests in dollars the dollar investments remain the same. In the past this has mostly been likely as the dollar being the reserve currency is a likely safe haven as well. However, if the market’s bearish on the dollar the relationship wont hold. That’s my simple take on it. 🙂
My eyes see patterns in the Fred chart. But when I count and measure, my mind sees tea leaves.
I don’t think there is much of a correlation in the last 8 years to be found at this point.
If confidence in the Fed wavers though many charts are going to correlate with gold.
Is there such a thing as a investor confidence in fed chart?