After a lengthy period of correcting lower, the US dollar is having one of the better sessions in the last few weeks even in a trading environment with limited economic releases and news. The main takeaway from today’s price action however is not the gains in the US dollar, but rather the divergence between the dollar and gold which typically exhibit a strong inverse correlation. Gold has also been on the March higher, breaking through key technical levels on the upside and have the best winning streak in nearly 4-months. The move in gold does come on the heels of investigations of the market rigging habits of the dealers participating in the London gold fixes and other problems stemming from blatant attempts at manipulation on NYMEX. However, in the meantime, gold prices continue to outperform weakness in the dollar by a wide margin and underperform on the downside when the dollar gains.
The dollar continues to benefit from the uncertainty circling Europe as resurgent fears regarding Greece send the EURUSD currency pair tumbling on limited news. The pair slid has already slid 50 pips and looks keen to be retesting support at 1.1323. While gold prices temporarily slid on the dollar strength, they have since reversed back to the upside, highlighting the breakdown in the correlation. Expecting the dollar to drive performance in precious metals prices at this point in time is difficult considering the renewed risk aversion encircling Europe. Aside from the outlook for Greece, continued monetary easing measures from the world’s largest producer and consumer of gold, China, remains a prime catalyst for the rally higher in gold prices to persist. Although hovering around the key $1225 per troy ounce level right now, $1238 is next resistance level to watch on the upside followed by $1252. Any move below $1212 paves the way back towards $1200
Gold Spikes Despite Dollar Gains
Market Trends - 18/05/2015