Friday, December 31, 2010

Gold - FOREX Correlations Strengthen Significantly as the Aussie and Franc Break Records

http://www.dailyfx.com/forex/fundamental/article/gold-forex_correlations/2010/12/31/Gold_FOREX_Correlations_Strengthen_Significantly_as_the_Aussie_and_Franc_Break_Records.html

Gold has been receiving an increasing amount of attention recently as the metal soars to new record levels. But you don’t have to trade gold to benefit from the metal’s recent volatility. In fact, many of the popular currency pairs have been moving in tandem with gold, offering forex traders an opportunity to piggyback on the uptrend or bet against it, with the added benefit of trading within the world’s deepest and most liquid market.
The following table includes the correlation between gold and the most popular currency pairs over various timeframes. A value close to +1 indicates a strong positive relationship between gold and the pair, while a value close to -1 indicates a strong negative relationship.
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Gold
USD/CAD
AUD/USD
NZD/USD
EUR/USD
GBP/USD
USD/JPY
USD/CHF
15 Min, 3 Day
-0.78
0.81
0.77
-0.03
0.14
-0.76
-0.55
60 Min, 1 Week
-0.94
0.95
0.91
0.46
0.19
-0.92
-0.84
60 Min, 2 Weeks
-0.66
0.83
0.89
0.24
-0.29
-0.83
-0.81
Daily, 1 Month
-0.54
0.41
0.85
0.41
0.03
-0.69
-0.22
Weekly Commentary: Gold – FOREX correlations strengthened significantly in the latest week, as gold soared and the U.S. Dollar plummeted. Specifically, we saw gold advance in four of the last five sessions, while the dollar has fallen for seven straight sessions. As one would expect, the strongest correlations in the week were between gold and the commodity currencies, as well as gold and the safe haven Swiss Franc. Daily correlations still look weak as they have not caught up to the more timely intraday correlations, but they are slowly rising as well.
Our preferred pairs for proxy gold exposure remain AUD/USD and USD/CHF. In fact, both reached record levels this week, which is something we like to see for any pair that is considered a proxy for gold. NZD/USD, on the other hand, had a strong correlation in the latest week but the pair remains notably below its 2008 peak. Similarly, USD/CAD remains above its 2007 trough.
Gold_FOREX_Correlations_Strengthen_Significantly_as_the_Aussie_and_Franc_Break_Records_body_Picture_4.png, Gold - FOREX Correlations Strengthen Significantly as the Aussie and Franc Break RecordsGold_FOREX_Correlations_Strengthen_Significantly_as_the_Aussie_and_Franc_Break_Records_body_Picture_3.png, Gold - FOREX Correlations Strengthen Significantly as the Aussie and Franc Break Records
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Gold_FOREX_Correlations_Strengthen_Significantly_as_the_Aussie_and_Franc_Break_Records_body_Chart_2.png, Gold - FOREX Correlations Strengthen Significantly as the Aussie and Franc Break Records
Gold ETF holdings fell a modest 120K troy ounces from last week, but that didn’t stop gold from advancing almost $23. It once again looks like the tail is wagging the dog though, for while gold rose about 1.8%, silver rose by almost 5% to reach another thirty year closing and intraday high. Gold, on the other hand, failed to breach its record high above $1431. In turn, the gold/silver ratio plunged to 45 at one point, the lowest level since April 2006.
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