The US Dollar Index has been on quite a roll lately. Here is a look at a strong US dollar’s impact on gold.
US Dollar On A Tear!
February 11 (King World News) – Most markets have been a bit wobbly over the past week or so, and depending on one’s belief, there is a primary culprit – the dollar.
One of the best performing assets lately has been the U.S currency, and while intermarket relationships are always in flux, a rising dollar has been a concern for investors across many asset classes. The U.S. Dollar Index just managed its 7th straight gain (now 8th straight gain today), one of its best streaks in 40 years.
US Dollar On A Tear – One Of Its Best Streaks In 40 Years!
When it has showed a gain like this in the past, it was a decent longer-term sign…
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… Even though its trend has been flat over the decades, it has enjoyed periods of strength. And after these bursts of momentum, those gains were a little more likely than otherwise. Over the next several months (and beyond), the dollar showed a gain about 70% of the time, with good average returns and an especially good risk/reward ratio.
There are markets more closely correlated to the dollar than stocks are, primary among them being gold. If the dollar tends to show strength, then gold tends to show weakness, and we can definitely see that below. The table shows gold’s returns after the dollar momentum signals.
This Is How Gold Reacts When The Dollar Is On A Tear
Across almost all time frames, gold’s returns were below random. Once we get to two months and beyond, returns were especially bad. They were also consistently negative, and the risk/reward was very poor (see chart below).
A Look At A Strong US Dollar’s Impact On Gold
There are more important factors than short-term momentum, and any of those could easily overwhelm a signal like this. But it’s a sign that there’s enough money behind a major market to push it consistently higher, and that’s been a bad thing for both stocks and gold. This is another example of why Jason Goepfert is the best in the world at what he does — providing actionable market data. To subscribe or try a free two week trial to the internationally acclaimed work that Jason Goepfert produces at SentimenTrader CLICK HERE.
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