Dollar momentum isn't stopping gold
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Jason Goepfert
Published: 2020-02-20 at 11:00:00 CST
Dollar is no bug for gold
The dollar has a big impact on the price of gold, with a rising dollar being a headwind to rising gold prices. But not lately.
Over the past 3 months, gold has managed to rise along with the buck. The rolling 3-month correlation in their daily price moves has traditionally hung in negative territory, especially since 2002. Now, it has climbed to the highest since 2016.
Over the short- to medium-term, it was a better sign for the dollar than it was for gold (or the euro or commodities). A month after similar rises in correlation, gold averaged a return of only -0.9% while the dollar averaged a gain of nearly 1%. Stocks tended to hold up well, if we can assign any meaning to that.
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Dollar driven
As noted above, the U.S. Dollar Index continues to trend higher, pushing its 14 day RSI to the highest level since mid-2018:
As is usually the case, high momentum can be interpreted in 2 ways:
- The market needs to reverse
- The market will chop around for a while, then continue going in the direction of its previous trend
When the USD Index was at a 1 year high while RSI exceeded 76 in the past, the USD's returns over the next month were quite bullish. Momentum doesn't die that easily.
However, returns over the next 2 months were weak, particularly if we exclude the many cases during the 1981-1985 USD bull market.
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The post titled Dollar momentum isn't stopping gold was originally published as on SentimenTrader.com on 2020-02-20.
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