Thursday, June 21, 2007

Australian Dollar and Gold

Today's post is a chart of the Australian Dollar. You may be wondering why I am talking about a currency when this is supposed to be a gold site. However, as Forex traders know, the price of gold and the value of the Australian Dollar exhibit a high degree of correlation. This correlation, which some say is as high as 85%, is partly due to the fact that Australia produces a tremendous amount of gold, and is generally considered to be a commodity currency.

In the above chart, the Australian Dollar is at the top, in the middle is an MACD histogram of the Aussie, and at the bottom is a chart of the XAU, which was discussed in the previous post. Notice that, even though the correlation is not perfect, the two charts tend to peak and trough at the same time. Sometimes, a bullish development can occur in the Aussie chart, which could not be seen in the gold charts. This would be considered bullish for gold. Astute traders can also take advantage of divergences. For example, if the XAU is grinding lower, but you notice that the Aussie has already turned around and started higher, this may give you an early clue that the XAU is liable to do the same. This sort of thing occurred near March 12, 2007. Please click on the chart to see an enlarged picture, and to read my comments. I think this chart is another good tool, but it always best to get a confluence of charts saying the same thing before making a trading decision. Anyway, hope this makes sense. See you at the next post.

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