Gold prices in November 2010; blame it on the yen? – Dec 5th

The month of November was a busy one for the commodities markets and gold market in particular; I won’t go into detail of all the news items that happen during November, but I will just point out two items worth mentioning vis-à-vis the relationship among spot gold price and major currencies:

1. In the following table I present a summary of the correlation of daily percent changes among spot gold price and major currencies, for the month of November:

Correlation among spot Gold  price & Currencies November 2010

The table shows that there is a strong negative correlation between the USD/YEN and spot gold price, i.e. on roughly 40% of the time, when the USD/YEN was devaluated, the gold price rose and visa versa. Or in other words, when the Yen strengthen against the US dollar, on average 40% of the time the spot gold price increased during the month of November.

2. In the following price of gold chart there are several time series which include USD/YEN, AUD/USD and EURO/USD exchange rates. They are all normalized to 100= 1/11/2010 so that they could be comparable. It shows two points worth mentioning:

2.1.                     Gold prices while they did rise from the beginning to the end of the month, it did show a lot of fluctuations and no apparent clear trend*;

2.2.                     While EURO/USD and AUD/USD were on a downward slop, USD/YEN showed an upward trend.

price of gold chart and major Currencies November 2010

What does it all mean?

Obviously we can’t draw a conclusion of causality between any of these currencies and spot gold prices based on these evidences; all we can say for now is that it could mean that Japan, one of the major players among countries demanding gold, may have played a role during the month of November in driving the prices of gold up.

* Note about 2.2: Obviously I could have switched the YEN/USD and would have gotten a downward trend like the rest the exchange rates; however, the point I was trying to make was not on EURO and AUD but on the Yen, especially because of its strong correlation with Gold prices.