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Long-term negative correlation between the dollar, Gold 1 OZ (XAU=X) prices takes a break


Long-term negative correlation between the dollar, Gold 1 OZ (XAU=X) prices takes a break

Gold prices surged this year due to greater uncertainty in the global macroeconomic environment.

By August, the price briefly regained the $1,500/ounce price point and stood at $1,460/ounce in late November.

Over the longer term, gold prices and the dollar tend to move in an inverse relationship, as demonstrated by this chart, which shows prices from July 2012 through early November 2019:

Source: MetalMiner data from MetalMiner IndX(™)

However, the relationship does not always hold true.

More recently, we’ve once again seen a break in the relationship, which started late last year (the vertical blue dotted line above) and picked up steam around June.

Source: MetalMiner data from MetalMiner IndX(™)

Both gold and the dollar trended up in value overall, especially from July until September. However, gold prices gained greater momentum and increased by a greater measure than the dollar. Then, both values fell in September and October.

The relationship appeared to switch back to an inverse pattern in November.

Gold prices and the dollar-yuan exchange rate

Source: MetalMiner data from MetalMiner IndX(™)

Because the value of the yuan is set by the central government, the graph above using the CNY/$ exchange rate serves as a proxy to examine the relationship between the currency and gold prices.

Keeping in mind that a higher value on the right axis means a weaker yuan, we should expect to see these two prices moving together.

As the yuan weakens against the dollar, gold prices weaken. As the yuan rises in value, gold prices rise in value.

In real life, the relationship gets impacted by multiple variables. The yuan and the dollar do not have to move in an inverse pattern; the yuan is not a commodity but a currency (the same is true for gold).

However, in recent months, the gold price appeared to more tightly follow the CNY/$ exchange rate in a predictive fashion, rather than holding to its longer-term inverse dollar relationship.

This type of pattern emerged during 2016, as well.

Will quantitative easing by the Fed send gold prices up in Q4?

Monetary policy is known to impact commodity prices.

Quantitative easing is a form of monetary policy; therefore, we can expect any such actions in this direction to impact gold prices.

Quantitative easing can be used when interest rates are already quite low. In effect, it increases liquidity in the system, thus spurring growth.

U.S. Federal Reserve balance sheet since 2008

Source: Board of Governors of the Federal Reserve System

Quantitative easing occurs when the government purchases certain financial assets, which in turn raises the value of the assets but lowers their yield.

Basically, easing targets asset classes that are performing poorly, thus correcting losses for financial institutions. This, in turn, allows financial institutions to lower borrowing rates, creating more liquidity in the system.

The ease of access to funds by businesses and individuals then stimulates economic growth.

What this means for industrial buying organizations

With the overall macroeconomic environment characterized as unstable, gold prices may generally continue to trend higher in the short term, as gold gets used as a hedge.

However, over a longer period, current monetary policies could weaken prices once more — assuming they take effect as intended.

Technical Indicators

Overall, the bias in prices is: Sideways.

The projected upper bound is: 1,502.47.

The projected lower bound is: 1,445.78.

The projected closing price is: 1,474.12.


A black body occurred (because prices closed lower than they opened).
During the past 10 bars, there have been 4 white candles and 6 black candles for a net of 2 black candles. During the past 50 bars, there have been 24 white candles and 26 black candles for a net of 2 black candles.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 76.6017. This is not an overbought or oversold reading. The last signal was a sell 0 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 51.52. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 70 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 139.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 6 period(s) ago.


The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 3 period(s) ago.

Rex Takasugi – TD Profile

PREC.M.XAU= closed down -2.537 at 1,474.704. Volume was 8,900% above average (trending) and Bollinger Bands were 63% narrower than normal.

Open     High      Low     Close     Volume___
1,477.2441,484.0001,470.9601,474.704 86,430
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 1,463.28 1,482.73 1,403.25
Volatility: 9 12 15
Volume: 8,643 1,729 432

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.


PREC.M.XAU= is currently 5.1% above its 200-period moving average and is in an downward trend. Volatility is extremely low when compared to the average volatility over the last 10 periods. There is a good possibility that there will be an increase in volatility along with sharp price fluctuations in the near future. Our volume indicators reflect very strong flows of volume into XAU= (bullish). Our trend forecasting oscillators are currently bearish on XAU= and have had this outlook for the last 19 periods.

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S. Jack Heffernan Ph.D. Economist at Knightsbridge holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Crypto, Mining, Shipping, Technology and Financial Services.