Gold has been highly sought after since the beginning of recorded history.
It is considered one of “safe” assets during times of uncertainty.
Gold is priced in US dollars and is usually inversely correlated with the US dollar.
The stronger the USD, the less of it is required to buy one unit of gold.
The weaker the USD, the more of it is required to buy one unit of gold.
1) Prior to the height of the crisis, gold price was pretty much stable.
2) When the height of the crisis unfolded, gold dropped in price. Notice towards the end, the value picks up as solutions by countries all over the world unfolds.
3) As uncertainty subsides towards 2009, gold’s value increase.
1) Prior to the height of the crisis, the currency pair was rather stable.
2) When the height of the crisis unfolded, the US dollar increased in value due to risk aversion and this is seen here with EUR/USD dropping. Notice towards the end, as with gold, the currency pair picked up too due to the US Dollar weakening in value.
3) As uncertainty subsides towards 2009, risk appetite increases and the US dollar weakens. Thus EUR/USD goes higher.
Doing a comparison of the two charts, there appears indeed to exist an inverted correlation between gold and the US dollar.
Keeping this in mind, we can always refer to the price of gold as a clue to the potential value of the US dollar.
However as of all market relationships, always keep an open mind and watch out for a change in trend if ever.
Trade safe as always.
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