Why Doesn’t Gold Glitter These Days?

(Click on image to enlarge)

Two Year Chart of GLD (white) vs. TIP (orange) with 100 Day Percentage Correlation

Source: Bloomberg

Here we see that the relationship between gold and the dollar is largely inverse. That makes sense, given the nature of exchanging dollars for gold and vice versa. In this case, the two started out with a relatively high inverse correlation that was declining throughout the 4th quarter of 2019. The correlation reached a low in the post-Covid crisis – again sensible considering the save haven status of the metal. Over the past few months, however, the prior inverse correlation has returned. It appears to be solidly in place.

In sum, gold is not acting as a particularly good hedge against inflationary expectations, but it has acted well as an “anti-dollar”. The problem for gold over recent weeks is that the dollar has strengthened as interest rates rose. Interest rates are rising along with higher inflationary expectations, but those are pushing up the dollar rather than a classic inflationary hedge. This has been a headwind for gold bugs in recent weeks and could remain so until or unless investors change their focus back to treating gold more as an inflation hedge than a currency hedge.

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Disclosure: FOREX

There is a substantial risk of loss in foreign exchange trading. The settlement date of foreign exchange trades can vary due to time zone differences and bank holidays. ...

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