Gold has been receiving an increasing amount of attention recently as the metal soars to new record levels. But you don't have to trade gold to benefit from the metal's recent volatility. In fact, many of the popular currency pairs have been moving in tandem with gold, offering forex traders an opportunity to piggyback on the uptrend or bet against it, with the added benefit of trading within the world's deepest and most liquid market.

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.

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Gold

USD/CAD

AUD/USD

NZD/USD

EUR/USD

GBP/USD

USD/JPY

USD/CHF

15 Min, 3 Day

-0.62

0.29

0.03

0.16

0.34

-0.07

0.01

60 Min, 1 Week

-0.83

-0.08

0.34

0.43

0.71

-0.29

0.49

60 Min, 2 Weeks

-0.04

0.85

0.88

0.75

-0.09

-0.87

-0.85

Daily, 1 Month

-0.07

0.86

0.41

0.52

-0.25

-0.75

-0.85

Weekly Commentary: Gold - FOREX correlations were nonexistent in the latest week as prices consolidated. On a week-over-week basis, the U.S. Dollar was slightly lower, led by a rally in the Euro. Meanwhile, gold was essentially unchanged as the metal fluctuated just above a key technical support level near $1360. Trading activity was best characterized as listless in the latest period, with no clear trend evident.

With that said, correlations between gold and AUD/USD, as well as gold and USD/CHF remain strong over longer periods, thus we continue to recommend these pairs for proxy gold exposure in the forex market.

Taking a look at gold specifically, prices have so far been successful in holding an initial support level near $1360. The metal's fundamental underpinnings remain intact, as monetary policy remains extremely loose and investor interest remains high. Some cracks may be beginning to form in the bull thesis; however, as indications are that monetary conditions may begin to tighten later this year. Officials from both the ECB and BOE have begun to acknowledge inflation risks. Market-based interest rate expectations have risen in response, with traders anticipating two to three hikes from the central banks this year.

On the other hand, the Fed has shown no inclination to tighten policy anytime soon as it remains fully committed to carrying out its $600 billion quantitative easing program over the next two quarters. Additionally, even when monetary conditions were much tighter prior to the 2008 economic downturn, gold was steadily advancing. In fact, gold has risen for ten straight years, thorough boom and bust. The catalyst has been a surge in investment demand for the metal. To spur a meaningful downturn in prices, investment demand must soften. Why would higher interest rates or the prospect of higher interest rates have an impact now when they had no impact in the past? We are wary of taking any intermediate or longer-term bearish positions in gold until there is evidence that investor interest is waning.

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Gold prices were flat, but gold ETF holdings fell for a fourth week, and are now almost a full million troy ounces below the record of 68 million troy ounces set back in December. These are the lowest levels of gold ETF holdings since late-November.

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