The Gold and US Dollar Trading Relationship
|
|
 |
Trading Features / Strategies from Anthony Grech, Market Strategist, IG Index.
What will happen to the US Dollar, Gold and other Precious Metals as countries around the world enter recessions? What are the basic trading rules that investors should know if they are spread betting on these markets?
- Gold is considered to be a long-term hedge against inflation. That has been empirically justified by research conducted by the World Gold Council (June 2006).
- In the short-run, the geopolitical tensions or periods of uncertainty spark an uptrend in the price of precious metals. Precious metals may be considered to be a hedge against geopolitical tensions or severe crises.
- There is an inverse relationship between the Commodity Precious Metal Price Index and the US Dollar Index. This relationship is also substantiated by the empirical findings of the World Gold Council which shows that there is a negative relationship between the price of gold and the US dollar.
- During recessions the US dollar typically appreciates in value and the price of silver, platinum and palladium decline, keeping true to the inverse relationship mentioned above.
- During recessionary periods the price of gold and the US Dollar appreciate together, failing the inverse relationship in the short-run. In the long-term, the inverse trend between gold and the US dollar holds, just not during recessions.
The above suggests that gold is not only a long-term hedge against inflation and a short-term hedge against crises. It suggests that Gold, unlike silver, platinum and palladium, is also short-term recessionary hedge.
Financial Spreads >>
"With FinancialSpreads.com you get all the normal
advantages of Spread Betting plus..." >> read
Financial Spreads review.
|
If the above is true, that goes some way to explaining what could happen over the next few years.
For a slightly different perspective Anthony Grech, Analyst, IG Index stated in his 2008 Precious Metals Report that he felt that:
- Uncertainty concerning a US recession and weakening equity markets could entice investors back to precious metals, triggering brief spikes.
- My overall impression is bearish for 2008-2009. I believe that precious metals have already reached their peak and silver, platinum and palladium are likely to experience a downward correction from current levels, especially if the US economy enters a recession and the US dollar starts to appreciate.
- On the other hand, gold finds some support during recessions and appreciates. However, the rise is likely to be minimal since the increase during the previous three economic downturns averaged around 2%. As a result, investors would be better off shorting other precious metals.
- Assuming the US economy did fall into a severe recession similar to the stagflationary period seen in the 1980s, gold (and possibly the rest of the precious metals sector) could start to experience a sharp rebound. However, I believe that this event is unlikely to occur. The Federal Reserve is proactively reducing interest rates and has been successful at managing the recessions that occurred after the 1980 downturn.
- [my] long-term trend for precious metals is bearish, but short-term ‘emotional’ spikes are foreseeable.
The above comments do not constitute investment advice and neither IG Index nor Clean Financial accept any responsibility for any use that may be made of them.
IG Index >>
"With IG Index you get all the normal
advantages of Spread Betting plus..." >> read
IG Index review.
|
Risk Warning: Financial Spread Trading and CFDs carry a high level of risk to your capital. You may lose more than your initial investment. They may not be suitable for all investors. Only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved and seek independent financial advice where necessary.
Article provided / approved by IG Index which is authorised and regulated by the Financial Services Authority (FSA), FSA Register number 114059.
'The Gold and US Dollar Trading Relationship' edited by DB, updated 10-Oct-08
Related Articles:
Daily Spread Betting Blog, updated 22-May-12
In mid-morning trade the FTSE 100 has made a solid start and has continued its push higher. A strong finish in US markets saw the Dow Jones closing on the highs of the...read article: Daily Spread Betting Blog.
Spread Betting Prices, updated 22-May-12
Spread betting prices - a live spread betting price guide plus which spread betting companies offer live prices, how to use them and...read article: Spread Betting Prices.
Spread Betting Guide, updated 21-May-12
Spread Betting Guide: What is spread betting, how to spread bet, spread betting advantages, spread betting examples and...read article: Spread Betting Guide.
Spread Betting Guide to Making a Trade, updated 21-May-12
Spread Betting Guide to Making a Trade: A step-by-step guide on how to place a spread bet including a fully worked example and...read article: Spread Betting Guide to Making a Trade.
Stock Market Opening and Closing Times, updated 21-May-12
Stock Market Opening and Closing Times: a look at when the leading European, US and Asian stock markets open and close. Plus, where to get stock market index trading analysis, news and...read article: Stock Market Opening and Closing Times.
Spread Betting v Share Trading, updated 21-May-12
Some people see spread betting and standard trading as two different sides of the same coin. Whilst the pair do share similarities, it is fair to say that...read article: Spread Betting v Share Trading.
Sectors Spread Betting, updated 21-May-12
Sectors spread betting is a convenient way of taking a position on an entire industry by giving investors exposure to a basket of underlying stocks in a particular sector. Sectors are groups of firms that all...read article: Sectors Spread Betting.
First Page << 1 2 3 4 5 6 7 8 9 10 11 12 >> Last Page
Also see:
Trading Features / Strategies Index – an index of all the Trading Features.
|
|
Q) Average Trading Results?
A) Get free spread betting tips, offers, price updates, important news and more!
|
|
