I was commented the $AUD was strong today, in harmony with the strong Gold price today, and I was asked
about the relationship between the AUD and Gold, and why they would move together. Here are my thoughts.
Australia produces quite a bit of gold and they have lots of gold mines in Australia, and the AUD often moves just as gold does, they are highly correlated.
So it just confirms the move in Gold a bit more to have the AUD strengthening as Gold does, much as if you
are bullish when bonds are going up in price, and you think interest sensitive stocks will go up you want the
BRK and XBD to be also going up and not diverging.
It's not rocket science but, it can be a tell.
Australia, produces quite a few commodity products, Copper and other base metals, Crude, wheat, wool, etc
so also since Gold is said to be a proxy for inflation building in the system, the Aus economy and hence the
dollar are positioned to benefit from greater inflation. They can sell more commodity products, at a higher price
and as they convert foreign currency into AUD, it would bid up the price of the AUD.
John |
