First of all, it's important to note that gold is one of Australia's biggest exports. There are often huge correlations between the Aussie dollar (AUD) and gold. However, there are periods of disconnect there as well.
Let's take a look at the chart below that goes back about four years.
Sometimes Commodities "Disconnect" from Their Currencies
If gold and the Aussie dollar always correlate, then the AUD/USD and gold should always head in the SAME direction. They often do. However, there are exceptions. I drew yellow arrows on the graph above to show you the exceptions to this rule.
For instance, in 2005 the Aussie dollar actually traded OPPOSITE of gold's price. This means the U.S. dollar and gold both rallied at the same time, in the same direction. While that doesn't happen often, it does happen.
Also, I'd like to point out how gold and the Aussie dollar have acted this year - particularly from about July up until now. Notice that most of the time, the AUD/USD and gold have similar "magnitudes." In other words, they both rose and fell at a great degree.
In recent months, gold had a decent fall... but the AUD/USD just got absolutely unduly punished.
In fact, the AUD/USD pair has fallen about twice as much as gold has. So this shows that not only can their directions move differently (like in 2005) but also the magnitudes of these two can vary as well.
Correlations hold true generally, but there are times when they buck the norm. You want to be prepared for those times when they come. Don't make the mistake of assuming that these com-dollars always dutifully track commodity prices.
SEAN HYMAN, Currency Analyst
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