AUD/USD and Gold correlation falls apart
AUD/USD and Gold prices have been moving in correlation for the last decade or so. Australia is the second largest producer of Gold (after China) in the world. According to a reported released by Surbiton Associates, Australian mines produced 7.3 million ounces of Gold in 2009. Most of Australia’s gold is exported to other nations and this has historically tied the price of gold and Aussie Dollar. As demand for gold increased along with other natural resources, the AUD/USD got stronger. The Aussie is also called a commodity currency because of the huge amount of natural resources exported by the island nation.
Recently we have seen a divergence of gold prices from other commodities such as coal and copper. Gold is the world’s new reserve currency after the S&P credit rating agency downgraded the U.S. In the past capital flowed into the U.S. Dollar during times of crisis. Now capital is flowing into gold with the commodity touching a high of $1880 an ounce in today’s Asian trading session. Central Banks from Korea to Kazakhstan have been reported to have stock piled gold in their vaults. India, which is the world’s largest consumer of gold, may purchase as much as 1000 tons this year. While demand for gold sees no end in sight, demand for other natural resources has fallen recently. Oil, Copper and coal have recently come down due to fears of recession in the U.S. and Europe. When demand for natural resources falls, the AUD/USD falls in tandem.
At the beginning of August, AUD/USD was trading at 1.1000 and has since then fallen as low as 1.0100, a drop of 900 pips. Analysts are calling for AUD/USD to reach 1.0000 in the current climate of dual recession on both sides of the Atlantic. During the same time, gold has gone from $1600 an ounce to $1880 an ounce, an increase of 17%. Analysts are expecting gold to touch the psychological level of $2000 an ounce in the coming weeks.