Correlation between Gold and USD

[StefanM]

Hello All,

I see that in the GMRS and GSRLV that the GLD allocations are quite high in August 2018.

Given GLD’s (mainly) inverse correlation with USD, and that currently USD is stregthening (see DXY Dollar Index), has the LI team performed any research into when GLD acts as a hedge (i.e. as a safe haven) and when its inverse correlation to USD may adversely impact GMRS and GSRLV strategies? I am wondering if positive DXY performance could be seen as a signal to reduce GLD exposure and possibly move to TMF, for example.

Thanks

[Frank Grossmann]

You are right, GLD has a very strong inverse relation to the strength of the US$. The problem however is that the US$ is mainly driven by unforeseeable political events like this time the Turkish Lira crisis. This makes it very difficult to do any successful Forex strategy based on momentum. Unfortunately we have the same problem with Treasuries. These can react very strong and unforeseeable on any smallest Fed comment.

[StefanM]

Thank you Frank.

Here is an interesting article on ETF Trends talking about GLDW, a USD-hedged physical gold ETF: http://www.etftrends.com/2017/01/why-the-first-currency-hedged-gold-etf-now/

This was my takeaway from the piece: “For instance, from the end of 2013 through the end of 2016, the U.S. dollar appreciated against a basket of foreign currencies, and gold prices in USD declined from $1,205 per ounce to $1,146 per ounce, or a 5% decline. However, if an investor took away the strengthening dollar from the equation, gold priced in non-U.S. currencies, like the euro currency, rose from €873/oz to €1,096/oz, a 25% increase, according to Bloomberg data.”

Would it be worth substituting GLDW for GLD in the various LI strategies?

Thanks

[Author]

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