Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Correlation With US Dollar Shows Gold Is Still Bullish

By

We may see the metal moving slowly higher rather than rallying immediately.

PrintPRINT
In Gold Provides Invaluable Insight I wrote that "the historical significance of the RSI being at 70 and the fact that the USD Index has just touched the 50% retracement of the previous rally leads us to anticipate that the recent USD Index rally will stall out and retrace. In addition, a rally for precious metals and precious metal stocks is looking more and more probable."

Since this is exactly what happened, I believe you might want to read my thoughts regarding US Dollar's and gold's next move. Let's begin with the long-term USD Index chart, which is once again the main driver of precious metal prices (I'll write more about that particular topic in the following part of this update).


Source: StockCharts.com

In the previous Premium Update I emphasized the Fibonacci 50% retracement level of the previous (March to December 2009 ) decline. Key Fibonacci levels have historically been reliable in identifying key support and resistance, especially on the US Dollar market.

Consequently, the US Dollar moved considerably lower -- visibly below the trading channel. This non-confirmation of a breakout is a bearish sign for the USD Index, and a bullish one for the precious metals. Please note that once again the RSI at 70 meant a local top in the US Dollar and a local bottom in gold and silver.

Another bullish signal for gold comes from the analysis of its correlation with the US Dollar.



The correlations of the US dollar are starting to become more and more aligned with the metals sector, which is something I was looking to see develop as this is what we've seen in the gold/USD markets right before the huge September to December 2009 rally.

Please take a look at the 30-day column of the values of correlation coefficients for USD and gold/gold stocks -- they're significantly negative for the first time in the last several weeks. Moreover, at the same time, the correlation between gold/gold stocks and S&P 500 is much lower. This means that gold and corresponding equities are once again mostly USD-driven in the short run.

Silver is still highly correlated with the general stock market, but it doesn't invalidate points made above, as silver tends to move closely with stocks because it has multiple industrial uses.

Therefore, the correlation matrix shows further evidence of the return of the highly negative correlation between USD and precious metals. Additionally, the link between gold, mining stocks, and the general stock market is much weaker than it was during the past several weeks. As mentioned earlier, this is positive news for precious metals because the return of this correlation is what I expected to see before the next big move up.
< Previous
No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE