Gold price remained firm in European session but failed to exceed yesterday's high. Despite traditional negative correlation, gold and USD has been moving in tandem since the outbreak of the anti-government unrest in Egypt. The situation indicates risk aversion in the market and investors seek for safe-haven assets. Protests were also seen in Algeria although the government said that 'domino effect' would not apply to the country. Indeed, should Egypt-styled tensions eventually spread to Algeria, European markets will be more affected since the country is a large source of the continent's gas imports.
The chart below shows the correlation between gold and the US dollar index. Note the 30-day correlation has shifted to positive territory since mind January. Anti-government protests in the Middle East and North Africa have escalated. While oil prices have jumped amid worries over oil supply disruption, precious metals also strengthened. We noticed that short-covering in gold futures began 2 weeks ago. The same unwinding should happen in USD futures which have been sold down excessively.
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