Friday, August 15, 2008

Oil, Gold and the US Dollar

Yesterday I posted an article on the short-term statistical correlation between Oil and US Equities. In that article I referenced the connection between Oil and the US Dollar, and one reader asked that I post the rolling correlations for those assets as well. Here they are with Gold thrown in for good measure.

Also, as a clarification I did not mean to imply that I think input prices don't impact our economy over time; merely that this is more difficult to detect using one basic statistical measure on a daily-close basis than conventional wisdom may purport.

ETF proxies include the United States Oil Fund (USO), the PowerShares DB US Dollar Index (UUP), and the SPDR Gold Shares (GLD), as follows starting with USO vs. UUP:

Similar to US Equities, while the daily correlation between Oil and the Dollar has been relatively weak, the Ratio of Inverse Closing Changes has certainly been on the rise. Below is GLD vs. UUP:

As shown, the inverse correlation between Gold and the Dollar has been significantly stronger and more persistent as compared to Oil. While the rotational/liquidative commodities crush looks more overdone by the day, gold bugs who believe the Dollar will continue to gain strength might bear this in mind.

1 comment:

Bill Luby said...

Once again, nice work Jeff.