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Does a positive correlation of gold with the dollar imply a fundamental change in the market?

December 21, 2012, 12:00 PM Przemysław Radomski , CFA

Periods of positive correlation with the dollar are beyond strange and highly unnerving. Are such periods an indication of some fundamental change in gold? It almost seems impossible. Any light you could shed on why gold sometimes tracks the dollar's every move would be greatly appreciated. This seems to negate the purpose we entered the PM market in the first place.

We doubt that it's some kind of fundamental change in gold. The most important thing is to check how often we have seen a situation like this during this bull market. And this is precisely what we do when looking at the gold:XEU ratio or gold priced in the euro. There have been times when gold declined along with the dollar and this resulted in sharp declines in the ratio and moves lower in the momentum indicators that are based on it, such as the RSI Indicator. History tells us that the relationship is likely to return to normal soon after a period when gold trades in the same direction as the dollar is observed.

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