[mehtaka]

Hello frnds,
I am new to commodity mkts, currently concentrating on bullions, specially gold.
Gold prices are subject to changes due to many factors.but mainly it will , coz of dollar and euro.
I want to know abt the calculation and relation between gold, dollar and euro.
Do help me out.

thanks

[scottshubert]

Gold is more or less inversely correlated with the dollar. I doubt if there is a precise calculation for its relationship with the dollar and the Euro. But the patterns are more chaotic and more difficult to trade. Trading a currency pair is much easier and produces much more profit.

[taq]

Originally Posted by scottshubert »

Gold is more or less inversely correlated with the dollar. I doubt if there is a precise calculation for its relationship with the dollar and the Euro. But the patterns are more chaotic and more difficult to trade. Trading a currency pair is much easier and produces much more profit.

It depends on the time frame we are talking about.
Here I am updating the correlation analysis of last 100 hrs, 100 day & 100 week data.
As you can see in the short run (hrly data) correlation is -0.50
For intermediate (daily ) its -0.90 while on weekly it is showing 0.06.
Hope it might help.

Regards,
TAQ

[nt82]

Originally Posted by taq »

It depends on the time frame we are talking about.
Here I am updating the correlation analysis of last 100 hrs, 100 day & 100 week data.
As you can see in the short run (hrly data) correlation is -0.50
For intermediate (daily ) its -0.90 while on weekly it is showing 0.06.
Hope it might help.

Regards,
TAQ

Hi,

A newbie here, can you please explain how you calculate correlation between two commodities? and when you say hrly data is -0.50 , what that exactly means?

[scottshubert]

Originally Posted by taq »

It depends on the time frame we are talking about.
Here I am updating the correlation analysis of last 100 hrs, 100 day & 100 week data.
As you can see in the short run (hrly data) correlation is -0.50
For intermediate (daily ) its -0.90 while on weekly it is showing 0.06.
Hope it might help.

Regards,
TAQ

Another thing to keep in mind about using correlated pairs or equities to trade is that you must know how to trade without using correlations and use the correlated pair for insight into pattern interpretations. Since they move simultaneously if the correlated pair has been moving down you would want to be looking for an exit to a short rather than an entry. Or if the correlation is inverse then you would be looking for an exit for a long position but the correlation would not tell you to enter a trade any more than looking at the equity by itself. Correlations do not necessarily tell you when to get in or out of a trade any more than looking at the equity by itself.

[taq]

Originally Posted by scottshubert »

Another thing to keep in mind about using correlated pairs or equities to trade is that you must know how to trade without using correlations and use the correlated pair for insight into pattern interpretations. Since they move simultaneously if the correlated pair has been moving down you would want to be looking for an exit to a short rather than an entry. Or if the correlation is inverse then you would be looking for an exit for a long position but the correlation would not tell you to enter a trade any more than looking at the equity by itself. Correlations do not necessarily tell you when to get in or out of a trade any more than looking at the equity by itself.

Not many traders use this concept . I use this in forex trading everyday.Almost all major pairs are correlated some pairs show movements before others.

For ex. EU & GU have positive correlation coefficient +94
while EU & UCHF have -97 on dailies so i will avoid going long in both this pairs at the same time. I will go with strong signal & than look for opposite trade in other pair.

Originally Posted by nt82 »

Hi,

when you say hrly data is -0.50 , what that exactly means?

The correlation coefficient highlights the similarity of the movements between two parities.
If the correlation is high (above 80) and positive then the currencies move in the same way.
If the correlation is high (above 80) and negative then the currencies move in the opposite way.
If the correlation is low (below 60) then the currencies don't move in the same way.

On hrlys or short term its -50 which is not significant while on dailies or in intermediate terms -90 is almost perfect negative correlation.

[TheDude]

Originally Posted by scottshubert »

Gold is more or less inversely correlated with the dollar. I doubt if there is a precise calculation for its relationship with the dollar and the Euro. But the patterns are more chaotic and more difficult to trade. Trading a currency pair is much easier and produces much more profit.

This is just your opinion.

Id say commodities like Gold are easier to trade, especially when learning than financials simply because the fundamentals are a lot slower to track, and take a while to unwind in the market due to production times etc.

Mehtaka - I think you may want to look at silvers relationship to gold. x silver = y gold. Keep an eye on the spread between the two may help.
Although there may currently be a correlation between gold & USD, it may not last as the economy changes. In 6 months it may be oil, bonds etc that display a stronger relationship. Silver however will always have a tight relationship as its a proxy.

[Tiobingo]

The correlation between markets has always been a fascinating subject to me. John Murphy wrote a great book on the subject. The thing I would add to this conversation is that like anything else in the markets, correlation falls into the 'clue' department. You can gain good insight but I think you also need to always remain skeptical. If I am trading an emini like the Russell or Nasdaq, I'll also watch the Dow and ES (all 4). One of the 4 tends to lead on a lot of good moves. But the NQ (nasdaq) might lead one day while the Dow might lead on another. I saw the Dow, ES and NQ breaking out to the upside and I was in a Russell trade and the Russell just couldn't get it going, or so it seemed. But then, right at the point of frustration, it finally burst upward and achieved my trade objective. If you look at a 5 minute chart or 233 tick chart or whatever on one, it won't necessarily correlate with the same timeframe in another. I have won on a long Dow emini while also winning on a short Nasdaq at the same time, for example.