Should FX Worry About Gold?
The sharp moves in gold markets in the last few trading sessions are starting to spill over into FX. The market is presently at a loss over the exact drivers, but more important at whether the move matters for other positions which may or may not share a close price correlation with the yellow metal. Our gold strategists note that it is hard to pin the move on one single factor, but clearly weakening data is playing a role. As broader asset classes are taking note of this interpretation, prices are responding accordingly. Nonetheless, we stress that a handful of days’ harmonised price action should not be taken as proof of causality. If anything, correlations between gold and other traditional growth/inflation indicators have been diverging, and broader risk appetite is not reflecting a macro condition the move in gold is potentially pricing in. We see no reason to alter our fundamental views on G3 or risk currencies, but will w a tch shifts in correlations closely.
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