USD vs. Gold: Short-Term Futures Traders vs. Long-Term Gold Price

Zeal LLC  ( Original )
MAR 2, 2018

The US dollar and gold are both currencies, mediums of exchange.  Though gold isn’t used much as a currency today in practical terms, it played that role exceedingly well for millennia all over the world.  So it’s intuitive to view the dollar gold price as an exchange rate, much like the dollar-euro and dollar-yen prices widely quoted.

So regardless of the US dollar’s drivers, gold-futures speculators tend to do the opposite when sizable intraday moves arise.  When the USDX surges they generally sell gold futures, driving its price lower.

Thus gold prices and USDX levels are generally negatively correlated.  There are certainly exceptions that occur, because gold-futures trading isn’t gold’s only primary driver.  When investors are flooding back into gold, their vastly-larger pools of capital easily drown out whatever the futures speculators are up to. So gold most often disconnects from the dollar when investors are buying or selling gold at high rates.

The dollar’s meanderings are divided between major uplegs and downlegs, with their starting and ending points highlighted with light-blue lines.  The USDX’s gain or loss in each major swing is noted, along with the time it took.  From a major-dollar-swing perspective, gold is definitely negatively correlated.

ORIGINAL SOURCE: Fed Hikes, Dollar, and Gold by Adam Hamilton at Zeal LLC on 3/2/18