Gold rose Friday in US trading as the dollar fell. Darn those Europeans and Asians – their currencies got stronger, while the “almighty dollar” weakened. Who cares why, it happened. Today let’s take a brief look at the recent history of the US Dollar Index (symbol UUP) and GLD, the ETF that is our gold trading proxy.
Let’s start by recapping common wisdom. (Common wisdom, you may recall, are rules of thumb that are generally or “commonly” true.) Common wisdom says that in the lack of other major factors, gold prices will move opposite of the gold index. In fancy economic terms: Gold moves inversely to the value of the dollar. This is because as the dollar becomes more valuable against other currencies, it takes fewer dollars to buy the same amount of gold. Makes a certain amount of sense. Here’s the recent 3 month chart for UUP.