The catalyst that took both pairs higher today is unfortunately not any good news, but it is causing uncommon activity between the two. It is strange to see both pairs moving higher today, and it is worth investigating. The (DXY) is up 0.36% as well as USD pairs at the time of writing this, while gold is also up 0.62%. This unfortunate news is also why USD and gold are both buys for the time being.
Why USD and Gold Are Both Buys
If you have kept up with global news, you might have seen the growing tensions between the US and Russia-Ukraine as the US fears that an attack can happen any day. Regardless of the recent gains made by the dollar and gold, it is not something that I think is worth making a quick buck over.
The reason this is causing a surge in both prices is that fear of global conflict is bad for the economy, and that will hurt the stock market of most countries. However, this in turn helps gold which thrives off a slowing economy. At the same time, the dollar is making gains today because of the uncertainty surrounding this Russian issue as well as the anticipated rate hike next month.
Gold's Historical Performance During Major Conflicts
Gold tends to do better during wartime, or more specifically, when the US is not paying much attention to economic expansion because they are in the middle of war. I am also not saying that this conflict is on the same scale as WWII, but I was trying to get my point across on why gold is moving higher. During the Vietnam War, gold trended up overall. And after the gold standard ended, this pattern continued through the 80s and 90s when the US was engaged in military affairs.
USD and Gold Charts
The USD is pushing higher on the 1D chart after this news. Price just crossed above its 50 DMA which is always a bullish indicator should the candle close above it after today. Support lies below the higher low at 94.686.
Gold did end up breaking out of its long term wedge on the 1D as price nears a previous top around $1,877. Both the dollar and the metal are gaining today which suggests that there is still uncertainty on where investors think markets will go. But the closer we get to the interest hike date, the more likely USD will be in more demand.
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