Gold and DXY: Correlation Shows first signs of breaking
Gold and DXY
Recently gold has been very closely correlated with moves in DXY, but up to 3 times more volatile, moving up to 1.5% for
each .5% move in DXY - but not today. Gold is showing up on the day to day, only marginally, but until last week changed
things it would have most likely been down 1 to 1.5% today on back of DXY strength.
Last week's FOMC meeting left markets with the anticipated and forewarned sting in the tail (see TNX forecast) risk/reward
ratios are already way out of kilter and and now with a steady rise in interest
rates towards 'normalisation' in the 4-6% range - which will likely be faster than markets currently expect if wage
inflation starts to push beyond 5% - all mean that gold's not so bearish any more just beacuse the dollar's bullish.
Suddenly, there are are other factors in play, helping gold to weather DXY strength. This interplay between gold and DXY,
which has been so clear for so long now, has reached it's peak and this trade is over for now, done.
Cannot get bearish of gold unless it breaks below the small dynamic support underpinning price now for fall back to
1327-1325 range . And then, irrespective of the dollar from here on in, it has to break 1325 to trigger the next short back
to 1306. Looks as if today's price action is the first for while to see gold decouple from DXY - the reason is the hawkish tone
coming from the FED - (and subtext is inflationary wage rises, the biggest threat to inflation of all) - gold is being viewed a
little differently today than it was last week. It is the start of a new trend. Day 1. Follow the curve. Yellen is/was already
behind it, leaving Jerome Powell to clean up after her.
Recently gold has been very closely correlated with moves in DXY, but up to 3 times more volatile, moving up to 1.5% for
each .5% move in DXY - but not today. Gold is showing up on the day to day, only marginally, but until last week changed
things it would have most likely been down 1 to 1.5% today on back of DXY strength.
Last week's FOMC meeting left markets with the anticipated and forewarned sting in the tail (see TNX forecast) risk/reward
ratios are already way out of kilter and and now with a steady rise in interest
rates towards 'normalisation' in the 4-6% range - which will likely be faster than markets currently expect if wage
inflation starts to push beyond 5% - all mean that gold's not so bearish any more just beacuse the dollar's bullish.
Suddenly, there are are other factors in play, helping gold to weather DXY strength. This interplay between gold and DXY,
which has been so clear for so long now, has reached it's peak and this trade is over for now, done.
Cannot get bearish of gold unless it breaks below the small dynamic support underpinning price now for fall back to
1327-1325 range . And then, irrespective of the dollar from here on in, it has to break 1325 to trigger the next short back
to 1306. Looks as if today's price action is the first for while to see gold decouple from DXY - the reason is the hawkish tone
coming from the FED - (and subtext is inflationary wage rises, the biggest threat to inflation of all) - gold is being viewed a
little differently today than it was last week. It is the start of a new trend. Day 1. Follow the curve. Yellen is/was already
behind it, leaving Jerome Powell to clean up after her.