Gold Price Hurt by Haven Status as Europe Drives Confidence

The following table includes the correlation between gold and the most popular currency pairs over various timeframes. A value close to +1 indicates a strong positive relationship between gold and the pair, while a value close to -1 indicates a strong negative relationship. Colored values indicate week-to-week changes of over 30%.

Weekly Commentary: The Greek debt situation continued into its final weeks, largely driving risk sentiment in both the currencies and commodities markets. However, gold’s new-found status as a safe haven developed over the last month did not work out in its advantage. Investors largely expected the Greek situation to be resolved with passages of the confidence motion, 2nd budget agreement and further implementations details, funds flowed out of gold and safe haven currencies into higher yielding assets.

Despite the regained confidence in the Eurozone, traders look towards world economic health in the second half of 2011. A combination of additional weakness as the global economy struggles to recover and expectations of higher central banks to deal with inflation may spur dollar buying. This safe haven flow may further hurt the price of gold as US rates rise, adding additional demand for the haven currency.

Please note: Chart uses franc rate as CHFUSD to show safety correlation with gold.

Source: http://www.dailyfx.com/forex/fundamental/article/gold-forex_correlations/2011/06/30/Gold-Forex_Correlations_07012011.html