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The amazing dollar-gold relationship
Friday, February 13, 2009
Both the dollar and gold moved down today and that makes an amazing 13 out of the last 15 days that they have moved in the same direction (based on GLD and UUP, as first mentioned here earlier in the week). As shown below, going back almost two years, nothing comes close to this development as these two normally move in opposite directions.
Lest you think that this is just both of them zooming higher together, of the 13 days that the two moved in the same direction, there were seven gains and six losses.
This may be a fundamental change in the relationship between these two.
Full Disclosure: Long GLD, no position in UUP
3 comments:
Shouldn't gold be rising against most currencies? How the dollar fares against other currencies is more complex. But when you say 'the dollar is down' don't you really mean "vs other currencies on a particular index'?
I can see how that's important if you import or export, but I'm more concerned with how much house, truck, food, energy, etc an oz of gold buys.
And if gold goes down in a day's time but the cost in dollars to buy the above items goes down faster, then gold is going up here, no matter what other currencies are doing.
Yes, gold is rising against all currencies. The problem is, as I've whined about on many occasions, for some reason traders sell gold when the dollar rises against other paper money and they buy gold when the dollar falls against other paper money. The UUP ETF is the U.S. dollar index which is about two-thirds euro, then pound, yen, etc.
But 13 days of synched moves don't necessarily mean a multi-year relationship is now invalid. Statistically the "runs test" would probably indicate that this kind of minor reversal is quite common in a small sample size (especially one that's not randomly selected).
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