Wednesday June 15, 2005 - 11:18:35 GMT
Share This Story
Black Swan Capital - www.blackswantrading.com
Dollar and gold decoupling?
“The past seldom obliges by revealing to us when wildness will break out in the future. Wars, depressions, stock-market booms and crashes, and ethnic massacres come and go, but they always seem to arrive as surprises.”
Peter Bernstein, Against the Gods
Are the dollar and gold decoupling? Lately the very tight negative correlation between gold and the dollar has vanished. Over the past couple of weeks as the dollar has rallied, so has gold. In the chart below, it compares gold futures (blue line) to the US $ index inverted (red line). The US $ Index is inverted so that you can see how the series “decoupled” i.e. no longer moving inversely.
chart: gold and $ index
1) Short-term aberration
2) Euro money that’s still afraid of the dollar—It could be that those disappointed in the euro, still have little faith in the dollar as a store of value—so where else to turn—gold. And as the gold price rises sharply in local currency terms (outside the dollar) the rising price trend creates an incentive to add to positions.
3) Financial risk building in the system—attached below is the same series as above, but this time it is on a weekly basis – US $ Index (inverted) verse gold futures. What’s interesting is that the last significant “decoupling” we saw coincided with the Asian Financial Crisis and was exacerbated by the blow up of Long Term Capital Management (LTCM), September ’98; the Trading Wizard hedge fund of the day. The demise of LTCM was a real blow to the global financial system through its labyrinth of intricately linked derivative relationships. The Fed and assorted big boys had to step in and fill the breach.
chart: gold dollar index weekly
What was interesting during this same time was the action of the bond market—it was in the midst of a blow-off rally, maybe driven by a safe haven run into Treasury bonds….
chart: bonds & dollar index weekly...
Now I realize all of this is a stretch, based on just two weeks of $-Gold decoupling, but it’s probably something we should continue to watch closely.
Black Swan Capital
Forex Trading News
Daily Forex Market News
Forex news reports can be found on the forex research
headlines page below. Here you will find real-time forex market news reports
provided by respected contributors of currency trading information. Daily forex
market news, weekly forex research and monthly forex news features can be found
Real-time forex market news reports and features providing
other currency trading information can be accessed by clicking on any of the
headlines below. At the top of the forex blog page you will find the latest
forex trading information. Scroll down the page if you are looking for less
recent currency trading information. Scroll to the bottom of fx blog headlines
and click on the link for past reports on forex. Currency world news reports
from previous years can be found on the left sidebar under "FX Archives."