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Can Future Dollar Moves Fuel the Rally in Precious Metals?

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This week, the correlation between the precious metals and the USD Index changed and is now moderate to moderately weak.

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The Correlation Matrix is a tool which we have developed to analyze the impact of the currency markets and the general stock market upon the precious metals sector. We have a very interesting picture this week in the very short-term columns. The correlation between the precious metals and the USD Index changed and is now moderate to moderately weak. What used to be strongly negative is now simply somewhat negative. The reason for this is that gold recently managed to rally without declines in the USD Index and in spite of an actual small rally in the USD Index. This is a positive factor for the precious metals sector, so any implications here are bullish this week.

A slightly negative correlation in the last ten days (the very short term) is seen between the precious metals and the general stock market. This is also a positive sign as stocks declined heavily and the precious metals refused to follow. This is indeed a bullish combination for the weeks ahead.

Summing up, the case for the USD Index is now slightly more bearish than not, and the implications for the precious metals are bullish at this time. It seems that if the dollar rallies or trades sideways, precious metals will consolidate or rally slightly; if the USD declines, metals will soar.

Thank you for reading. Have a great and profitable week!

For the full version of this essay and more, visit Sunshine Profits' website.

Twitter: @SunshineProfits
No positions in stocks mentioned.
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