Gold Breaks the Rules & Rises with DollarSubmitted by SteveMT on Sat, 02/27/2010 - 19:16
Gold Breaks the Rules
by Myra P. Saefong
Friday, February 26, 2010
Gold's been quite the rebel lately -- and investors are giving it much more than a passing glance.
The precious metal recently broke from its usual inverse relationship with the U.S. dollar to move more in sync with the climb in the greenback, showing off its prowess as a resilient world favorite.
"Gold moving up with the dollar is a sign of tremendous strength in gold," said Sam Kirtley, chief executive officer of SK Options Trading.
Gold futures prices are up nearly 5% from this month's low of $1,050 an ounce in New York. The U.S. dollar index, which measures the U.S. unit against a trade-weighted basket of six major currencies, has also climbed, gaining more than 2% from its low in February.
"Both gold and the dollar have been trending upward since early this month," said Brien Lundin, editor of Gold Newsletter. "If gold and the dollar can decouple, [that would] hold important implications for the metal going forward."
And those implications are likely to be good for gold. A decoupling in the relationship would mean that "investors are not only buying gold as a U.S. dollar hedge but as a safe-haven asset too, and buying for this reason is so heavy it is outweighing the selling from U.S. dollar strength," said Kirtley.
But the direction of the precious metal and dollar are destined to diverge again -- and when they do, gold may or may not come out a winner.
The global markets are currently focusing on Europe's troubles, feeding a rally in the dollar, yet gold is still trading at around $1,100, said Kirtley. "So if gold can make gains, or even just tread water whilst the U.S. dollar rallies, it will soar if the greenback was to begin to drop."