Gold Prices and U.S. Dollar Correlation - 10 Year Chart. This interactive chart Gold to Oil Ratio: This interactive chart tracks the ratio of the price of gold. On Thursday, the price of black gold moved higher after the EIA weekly report showed an unexpected decline in crude oil inventories. Many times, however, “it's almost impossible to see a correlation” between oil and the dollar, said Phil Flynn, senior market analyst at Price.
However, seeing correlation largely depends on the time frame.
Correlation this week, could be no correlation the next. Supply and demand factors are dynamic and sometime not tangible, and therefore, correlations come and go like the tides. At the time, this correlation was attributed to hot money flows, speculative trading activity, deleveraging and futures markets occurrences such as contango and backwardation.
Relationship Between Crude Oil and U.S. Dollar in February 2018
Higher volatility is not necessarily linked to any one specific commodity in terms of its supply and demand conditions, but more so a reflection of greater speculative activity. Betweencorrelation between gold and the US dollar was broadly holding and volatility was broadly low.
However, sincethe correlation has become rather more erratic, with volatility returning to the same sorts of levels seen in the dark days of the GFC. But in a period where all fiat currencies are undergoing significant money supply expansion and the public is concerned about the repercussions, gold can trade higher in all currencies — even the US dollar.
In this scenario the correlation between the US dollar and gold could potentially switch from inverse to direct.
Gold, Oil and the US dollar: The three pillars of modern markets
It is worth noting that where the markets are now, is also, where they have been before. In Octobera correction occurred in energy, commodities and resources stocks based on European and Chinese growth fears. But international economic stimulus measures helped raise market confidence. On the flip side, if more QE is provided — that entrenches the current status-quo where fiat currencies are effectively being eroded by inflationary monetary policy.
Takeaways In modern markets possibly due to their highly speculative nature compared to the past perceived correlations are often interpreted as causation.
Why gold and the US dollar have an inverse relationship
When in reality, those correlations were actually coincidental and transitory. Correlation, causation and coincidence are three different things, and investors should know the difference before venturing into these highly volatile, yet fundamentally precious assets most investors know and love.
Get our newsletter with an exclusive article straight to your inbox keep me posted Gold Oil Like this article? Dollar Looking at the above chart, we see that higher values of the U. Such tendency we could see in the first half of and also between September and November we marked them with grey. In the first of the above-mentioned periods the level of correlation dropped significantly, but it started to grow steadily in the second period, which resulted in a strong negative correlation in the following months.
As you see on the chart, since November the U. Additionally, the recent rebound in the U. You can see this relationship more clearly on the chart below. With the above in mind, you can ask the question: Looking at the medium-term chart, we see that the USD Index dropped to the Although currency bulls triggered a rebound in the following weeks, the combination of resistances encouraged their opponents to fight once again, which resulted in a re-test of this key support.
Why this retracement is so important for the greenback? This means that currency bears reached the most important fortress of the bulls and both opponents realize that if it is torn down, the road to the peaks and the next retracement will be open.
With this in mind, it is not difficult to understand the increased involvement of the bulls in recent days.
Where did the last increases took the USD Index? It was quite bullish development — especially when we factor in the fact that this resistance line stopped the bulls at the beginning of the month, triggering a reversal and declines to a fresh low. Yesterday, the buy signals generated by the daily indicators encouraged currency bulls to push the index higher, but the lower line of the grey declining trend channel stopped them once again, triggering a pullback.
Thanks to this drop, the greenback moved to the previously-broken blue line, which looks like a verification of the earlier breakout.
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If the bulls manage to break above this first important resistance area, they will confirm that the worst is behind them and higher values of the greenback are just around the corner. What could happen if the situation develop in line with this assumption?UNDERSTANDING PETRODOLLAR: US DOLLAR, OIL PRICES & SAUDI ARABIA (EITS #5)
In our opinion, the USD Index will extend gains and test at least the