Not only equities markets and currencies are correlated to each other. There is a close relation between currencies and commodities, especially metals. In the beginning it needs to be explained that most commodities are quoted in U.S dollars on global exchange markets. Naturally, the movements of the American dollar determines the value of commodities, all other factors unchanged.
I want to focus in this section on the correlation that can be seen the best when analyzing financial markets – the American dollar and gold. Gold has been known for ages as a metal that retains value. That is why is becomes more and more popular during hard times – investors escape to safer investments. Gold has been gaining since the end of last year when the turmoil on financial markets began. But what made the price of one ounce of gold to shoot over 900 USD, was the depreciating American dollar. Investors would sell-off American currency in order to purchase gold, the safer and more reliable investment.
This kind of situation can be applied to most of metals. Both, platinum and silver, gain when the American dollar depreciates. Gold is still the best example. Please note the graphs below. Graph 1 represents the recent EUR/USD quotations while graph 2 show gold quotations. It can be clearly seen how both graph move symmetrically. Gold’s prices are in close relationship to what happens on the EUR/USD market. When analyzing the luxurious metal markets, please pay attention to the American dollar.
Feel free to contact me with any question or comments.
Adam Narczewski
X-Trade Brokers Dom Maklerski S.A.
adam.narczewski@xtb.pl