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Intermarket Dynamics- Forex Insight on Gold

Discussion in 'Forex Discussions' started by painofhell, Oct 9, 2016.

  1. painofhell

    painofhell Content Contributor

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    The price action in Gold has been the focus of deserving attention, yet further insight can be gained from an inter-market perspective.

    The usual historical inverse relationship between the USDX, US Dollar Index, and Gold has been out of sync. Both Gold and the dollar have been strengthening. We can see this in the chart below. But this inverse relationship is not likely to last. Is this an omen for a dollar retracement and a Gold sell off?

    [​IMG]

    Another revealing chart shows the relationship between the Yen and Gold. The recent Gold buying has been sourced to be from the TOMOC (The Tokyo Commodity Exchange) as Japanese investors looked to hedge against a very weak Yen. So quite significantly, on the TOMOC exchange, Gold futures went limit down, after 8 days of gain. Is this profit taking or a clue to further Yen strengthening? The fundamentals are beginning to color technical sentiment as a new Tankan Report may reflect business sentiment rising.

    [​IMG]

    A Bloomberg story reports that "The Bank of Japan will say on Dec. 14 that its Tankan confidence index climbed to 23 in the third quarter from 19 in the second, according to the median forecast of 26 economists in a Bloomberg survey." At the same time the Bank of Japan is signaling an end to the zero interest rate policy in Japan which has been a major driver of a weakening Yen.

    Let's add to this mix of analysis another factor- China. The Chinese are signaling clearly that they will allow their currency, the Renminbi Yuan, to further strengthen. A stronger Chinese currency means more demand for Japanese goods, and is another positive factor for strengthening Yen.

    The inter-market Gold puzzle gets more interesting when you see the Aussie/Yen cross and Gold Patterns. The Aussie has strengthened against the Yen in tandem with the move in Gold.

    [​IMG]

    What can we conclude about the Gold moves from the perspective of currency trading opportunities? The Forex trader need not try to predict where Gold is going, but should be ready for the opportunities to trade the currency pairs in response to what Gold will be doing. An intermarket perspective shows that the Aussie, the Yen, and the AUD/JPY cross provide price extremes that may be about to break. While the majority of Forex traders pay attention to the popular Euro, it may be wise to look east.
     
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