Market Anthropology: Australian for Gold

Thursday, January 9, 2014

Australian for Gold

Last February, we had commented on the cyclical nature of the strong correlation relationship that existed between the Australian Dollar and gold. While we were already card-carrying bears in both assets, the Aussie was pushing up against long-term resistance while net-speculative longs were reaching extremes at historic highs. The general thought at the time was that the juxtaposition of the cyclical correlation trend pointed towards another major inflection point for the Aussie – and buttressed our long standing perspective that a major breakdown was likely in the first half of last year in both assets. 

“The window in the diminished correlation extreme between the Australian dollar and gold appears to be resolving. We maintain the bearish expectations of long-term breakdowns in both the Aussie as well as gold – as the respective pivots in this long-term relationship once again tighten.” On-Script February 14, 2013


Fast forward to today, and both gold and the Aussie have retraced the entire moves that began with the push for QE2 by Bernanke in the summer of 2010. Despite having these cyclical windows where the correlation trends have been offset (most recently Q3 2013) from each other, we believe the next correlated pivot will be higher for both assets as the Aussie finds support at these levels. 

The comparative series for the Australian dollar was normalized based on the momentum lows as determined by the respective oscillators for each cycle.