The contradictory / companionship relations of Gold and the dollar
In past months, finding the correlation between the Gold and US dollar index is getting harder, as sometimes the same news can lift both or put them under pressure, and sometimes have different reactions. They have a different response because of one central question, the reason for the increasing US Dollar. For example, as what happened on Friday:
We had a severe reduction in the University of Michigan’s Consumer Confidence to 70.2 in the main index, which is the lowest level since 2011. This data put the UD dollar index under pressure to fall more than 0.5% (92.49) to print the worst day of the week.
In the published data, we can see an ease in the economic recovery, which means a weaker economy, putting the US dollar under pressure. At the same time, it can also mean that economy still has a long way to go and need more supports, so we can count on the FED stimulus to be held. So, the USD decreased and lifted the Gold, and at the same time, US ten-year Bond Yields dropped to 1.286%.
On the other hand, according to other news, which we expect to impact the market for the week ahead, United States reached the highest number of new coronavirus infections and death numbers worldwide, once again on Friday. It is not just about the US; India, Brazil, and Iran are other countries that suffer from the latest wave of Delta variant of coronavirus.
This news means higher risk in the market, which is not directly from economic data, so in this case, as XAUUSD is supposed to get boosted by that, we still have the US dollar safe-haven demand that in these kinds of situations increasing. So this news, especially if the coronavirus risk increase, will boost both USD and Gold through higher levels. For the week ahead, besides economic data, we have to follow the coronavirus headlines as well.
From the technical point of view, after free fall, as we can see, Gold has gained more than $100 already. In its daily chart, RSI at 46 with a steep ascending slope moving towards 50-level, the market volume also increasing, signaling the possibility of changing the trend; however, it needs to recover above 20 DMA at 1783 to see Parabolic SAR dots also under candles, and then to enter to the uptrend channel, we need to pass the 100 DMA above 1,805.
