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Guest Post: Gold's Changing Anticorrelation To The Dollar
Originally posted at The World Complex blog,
This article posted a few days ago struck me as interesting, as it seemed so counter-intuitive that I thought it worth a look.
On the basis of weekly charts of gold and the US dollar index over the past five years, Charles Hugh Smith concludes there is no correlation. And at first glance, there seems much to support his view.
The principal argument (as I have never been a believer in peaks and troughs) is his second point--that there are at least three significant intervals where gold and the US dollar rose in tandem since late 2008.
Over the past few years I have attempted to show that most economic data are nonlinear and best studied by methods suitable for complex systems. Such systems are not easily analyzed using methods like linear regression or fourier analysis. In fact I would go so far as to say that such methods can lead you to the wrong conclusions.
The world's situation is complex and changing. Change can drive unpredictable variations in market preferences--so while it would seem logical that people's preference for US dollars and gold might normally vary inversely, perhaps there are some circumstances when the market equally seeks both.
We consider a scatter plot of USDX vs gold (weekly) from January 2007 to the end of last month.
There are a few segments suggesting correlation. From early 2007 until late 2009, the two data series appear to be negatively correlated. From late 2009 until about mid-2010, they appear positively correlated (they rise in tandem). Since mid-2010, they appear to be negatively correlated.
The gold price appears to be far more sensitive to the USDX in the second phase of negative correlation compared to the first phase; by which I mean that a small change in USDX correlates to a much larger change in gold price presently than was the case before mid-2009.
From a dynamics perspective, I would argue that the three areas of the graph represent different "states" of the (US? world?) economy. Finding the triggers for changing from one operational state to another is of key importance.
QE1 occurred during the V, from the top of the first negatively correlated segment through the positively correlated segment. QE2 occurred during the advance (lower line) in the second negatively correlated segment. QE3 occurred during the period of decline (upper line) in the second negatively correlated segment. This all may be coincidental.
I expect we will continue to see relatively large fluctuations in the price of gold relative to changes in the USDX.
It looks like the system will have to drop down to the lower line before a steady advance in the gold price. If so, we would see a small, sharp drop in USDX without movement in the gold price, prior to a major move in gold (up) and the USDX (down).
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The best part: you CAN eat it! (and you should!).
It’s just a damn good thing that SPY GLD and old Eric’s PHYS are so tightly correlated.
If that started to separate, I might have a worry or two.
Ki-Tisa 32:20
Vayikach et-ha'egel asher asu vayisrof ba'esh vayitchan ad asher-dak vayizer al-pney hamayim vayashk et-beney Yisra'el.
Gesundheit
Your what hurts?
For those who don't know (and why should you..), that's a Hebrew phrase from one of the books of the Old testament.
Freely translated it's about Slaughtering a Goat, grinding it to dust, and spreading it on the water that the Isrelites drank from.
What exactly Ahmeexnal wanted to say is open to your interpretation, or his, should he care to elaborate.
I thought it sounded like shitish.
Was it here yesterday where I saw that there is loosening correlation between those two? (it wasn't price though, it was ounces held) It seems that PHYS, CEF and other "hard" funds have kept up their holdings, while GLD is busy being liquidated by the "authorized participants" (read: bullion banks).
>> It seems that PHYS, CEF
And CEF is being severely punished for it. Not only are the metals down, the negative premium adds insult to injury.
i had heard sprott gold has nearly no redemptions, but GLD tons of them.
" On the basis of weekly charts of gold and the US dollar index over the past five years, Charles Hugh Smith concludes there is no correlation. And at first glance, there seems much to support his view."
Gold movements correlated to EURO for five long years.
Gold Euro chart unimpressed by major swings either way,
it always adjusted. Me no chart witch, just observing.
The incorrect assumption one makes, when pricing gold in USD, is considering the USD a unit of account.
Thank you and good night.
For purposes of general work income & using it to purchase gold, right now, it's a forced situation rather than an assumption. You can barter for silver or gold but not to the entire world market, not yet.
Bla bla bla bla ... Gold bitchez!
Quick summary.
So OK, that's....um, hmmm. Thanks.
When something is manipulated to the degree gold is, correlations mean squat.
Actually no: the segmented trend lines show different patterns OF manipulation. The size & the time (now that dates are on the graph)
I have found that gold availability and my ability to afford it has a direct positive correlation to my well-being. No graph required....
The chart for this thread correlates, eerily, TIGHTLY, with the design [in pen], that I put on the top of a Mortons Salt jar the first time I did purple micro dot...
Quite interesting, thanks. In the upper right quarter, however, there is much space for future trends, too....
I will come back after a bowl and look at that chart again.
Do these guys just play with every chart option in the software until they see something that looks wild? It doesnt really add to the presentation.
I'd like to see the same chart in 3-D with time along the Z-axis, then it would be a little clearer how the acts play out and where the scene changes are.
Of course, if there were a real measure of the dollar (rather than the current relative idiocy), the chart wouldn't be so damn noisy to begin with. Kitco's gold index does a good job of dealing with that, IMO.
Here's an idea:
http://www.fxhistoricaldata.com/download/XAUEUR?t=day
change EUR to USD, CAD, AUD and so on
pick any one of them as the X axis and plot all the others on the Y axis.
Voila. The pattern should become clear. That's 10 years of daily data there.
For the brave (huge data) use t=hour and it is 10 years of HOURLY data. Since many hours are missing inconsistently on the sets you need to match up the rows by adding blanks before the scatterplot will look right. That's why I didn't do that for the hourly data - I don't have the time or an automated process / script.
The big picture over a decade isn't better revealed by hourly data anyhow so it's pointless to me.
"Do these guys just play with every chart option in the software until they see something that looks wild"
You know, there are machines to do this automatically.
http://www.youtube.com/user/gepsoft/videos?view=0&sort=dd&flow=list
http://www.genetic-programming.com
Squiggly lines bitchez.
I think I have a picture similar to that chart hanging on my refrigerator given to me by my daughter....Look daddy I made this for you.....a fish.
Corral relations. Only a stampede can end it.
What constellation is that?...
TA doesn't account for psychotic behavior, therefore TA is useless.
Hmm, yes, very interesting. What appears to be a giant black hole in the middle of what seems to be a giant vag, is most ominous.
This one's begging for a "fill the gap" comment :D
I personally prefer to consult the Jackson Pollock hanging in my living room before deciding when to enter or exit the market.
Guns and butter ! Hoo yah !
Someone sure took a big chunk out of the dollar today.
http://www.fxstreet.com/rates-charts/usdollar-index/?version=1
This is economists on acid.
Gold prices are only correlated to how much of the 85b monthly hog slop that the FED wants to share with the bullion banks in their 'leasing' or shorting of COMEX gold.
There is not enough 'investor' money to overcome the onslaught.
"Well what are you going to do? I'm going to check the entrails of a goat. A goat!? Yeah, Bernanke."
Fuck these charts are awesome! SAID NO ONE! I fucking hate these charts! They are retarded and totally uninformative.
Now there's segmented trend lines and dates attached I find it highly informative. The only other suggestion I could make is to have multiple charts with narrow time windows but given the density of information and the segmented trend lines, I'm fine with it all on one chart.
It makes the only point that matters: there isn't a single over-arching trend line so DXY is not at all correlated with gold PRICE in any fiat much less US dollars price.
An actual proper correlation would look like this, how gold & silver match up, http://flic.kr/p/f17z1s
and the bigger picture shows these same segmented trendlines, http://flic.kr/p/f5bHkJ
Given the much tighter correlation with gold & silver, however, you can see rather than circular meandering paths you see a broad trend from bottom left to top right. you just get a really low R-squared using the entire 2001 to 2013 data-set.
Maybe you just need to learn to read a chart instead of thinking you already know how.
Given the strong weighting in DXY to EUR/USD I'd say an equally valuable chart would be to scatterplot the price of gold in dollars, and the price of gold in euros, to see where they are positively correlated. Where they are negatively correlated is where the above chart in this article would show DXY negatively correlated to the US gold price.
http://www.fxhistoricaldata.com/download/XAUUSD?t=day
http://www.fxhistoricaldata.com/download/XAUEUR?t=day
throw that into openoffice, libreoffice or (yuk) excel & see for yourself.
Clearly, NO fucking correlation, no A/B causality. All I see is Mass-Manipulation by TPTB, and Hopes+Wishes by GoldBugs.
If a Financial Adviser showed me this chart for ANY other asset, I'd kick him in the fucking balls, fire him, and expose him for fraud.
would someone please chart all the charts we've been charting and tack it up there with all the other charts? honestly, i'm just too lazy.
In the future can you leave the yellow channel lines off? It messes with the timeline.