Gold shares an inverse dynamic with the dollar. When the dollar goes up, gold moves lower — and vice versa. In recent days, however, this dynamic has become stressed.
When the dollar moves lower, gold — which is denominated in the U.S. currency — has traditionally rallied as it becomes cheaper for non-U.S. investors to buy the precious metal in alternative currencies.
In early October, when the dollar index (DXY) hit an 11-month peak of 107, gold was languishing at $1,850 an ounce. By the end of November, the DXY had fallen 4.5% to 102 and gold had rallied 10% to $2,050. Tracking this movement in gold were exchange traded funds such as the SPDR Gold Trust (NYSE:GLD).
Low Trading Volumes
“Gold has had fits and starts all year because the dollar comes off and then it rallies again,” said Greg Weldon, CEO of Weldon Financial. “So people have become disappointed and left the gold market.”
Weldon explained that open interest in the gold futures market — that’s the total of all long and short positions, a measure of trading volume — has been very low since the recent push to $2,000. On ...