Key points
- Gold futures hit a new year-to-date high this week above $2,060
- AUD/USD historically shares a positive correlation to gold prices
- USD/CHF has the highest inverse correlation to gold among dollar pairs
The price of gold has been turbulent in recent years, surpassing the $2,000 mark multiple times since 2020. Despite fluctuations, gold has demonstrated resilience, attracting traders during times of uncertainty and inflationary pressures. The metal's most recent rally can be attributed in part to geopolitical uncertainty in the Middle East and global interest rates moving lower, as gold, being a non-interest-bearing asset, becomes more attractive. Gold futures have risen this week, hitting a new 2023 high Wednesday above $2,060/oz.
Using forex to speculate on gold
One of the reasons for examining gold's correlations with forex pairs is the accessibility and cost-effectiveness of the forex market compared to the gold market. By using forex pairs as proxies for gold, traders can potentially benefit from lower margin requirements and easier market access.
Australian dollar has historically shown a strong positive correlation with gold prices, with an current correlation of 0.44. This correlation can be attributed to Australia's position as one of the world's top gold producers. As gold prices rise, the Australian dollar tends to rally, reflecting the country's economic strength.
Conversely, the US dollar has exhibited an inverse correlation with gold prices in recent years. With the US at the forefront of recent interest rate hikes, the dollar's strength has led to a decline in gold prices. However, as interest rates move lower, gold becomes more attractive, causing the dollar to weaken. Among major USD pairs, USD/CHF has shown the strongest inverse correlation (average correlation of -0.52) among major pairs.
3-year gold correlations with USD pairs
- USD/CHF -0.52
- EUR/USD +0.48
- AUD/USD +0.44
- NZD/USD +0.40
- USD/JPY -0.38
- GBP/USD +0.36
- USD/CAD -0.28
Understanding these correlations can provide traders with valuable insights. For those looking to go long on gold, shorting USD/CHF could be a viable strategy. Conversely, traders seeking a short-gold position may consider buying USD/CHF. It is important to note that while historical correlations can be strong, they are not indicative of future relationships, and other factors can influence the forex market.
It is crucial to monitor economic developments and geopolitical risks that may impact these correlations. As the gold market continues to evolve, traders must assess whether the current rally is sustainable or if a reversion to historical price levels is imminent.
Data on gold prices use /GC futures as of 11/29/23
How to speculate using US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like IG. USD pairs can be found in IG's platform under the 'USD Pairs' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
