Gold prices near highs
In only 10 trading days, gold futures (/GC) have rallied over $100 to reach $1970 on Wednesday. Driven by geopolitical fear, gold volatility (GVZ) is also up 8% this month. While prices could go higher, there is little historical support for prices over $2000. Since 2010, gold futures have only closed above $2000 33 times – equating to 1% of the time.
Gold’s impact on USD
Historically, gold futures tend to move inversely with US dollar as each asset strengthens under different types of global uncertainty. The start of the COVID-19 pandemic, for example, saw gold prices skyrocket while USD flattened since global fear was high and the US economy fell stagnent. Over the past 10 years, gold’s correlation to USD has been exclusively negative – this year the correlation has strengthened all the way to -0.70.
Given the recent strength of both assets, traders begin to speculate whether one is bound to fall given historic correlations, or if the current global landscape will allow recent trends to persist. Several scenarios for future direction exist. Fear could push US yields and potentially USD lower, or fear could subside pushing gold lower. Alternatively, global fear could continue and the US could continue to outperform – leaving both assets to hold onto gains.
