This Ridiculous Gold And Dollar Correlation Has To Be Opening Up Arbitrage Opportunities

Talk about strange bedfellows — Gold and the dollar have recently been positively correlated. Gold priced in dollars should inherently move in the opposite direction of the greenback, but…

Bespoke Investment Group:

Below is a chart of the 50-day rolling correlation (using daily % change) between the metal and the currency going back to 1975. As shown, there has just been a big spike in correlation that is very rarely seen. The 50-day correlation, which is currently at 0.33, has only been above the 0.30 level 1.2% of the time since 1975.

We’re not sure if there are any believers in the ‘strong‘ form of efficient markets left these days, but if so, let them explain this nonsense:


We’re guessing they are using the Dollar Index to represent the dollar. This obviously can’t go on forever and this has to be setting up a riskless arbitrage somewhere. Perhaps sell gold for US dollars, use the dollars to buy another currency, and then buy the same quantity of gold that you initially sold with your new currency. The euro and yen probably wouldn’t work since they are too closely watched, a back of the envelope shows gold in euro and yen close to gold in dollars, though perhaps a fast trading system could catch arbitrages when they deviate. But perhaps a less followed currency would workd. Some gold price, in some currency, has to be going out of whack for both gold and the dollar to rise as shown above.

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