Equities and Gold Drop as Dollar Rises

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Includes: GLD, IEF, SPY, UUP
by: Scott's Investments

Some better then expected jobs numbers earlier this week helped raise expectations for higher US interest rates, which in turn has spurned a rally in the dollar. A rally in the dollar caused a sell-off in equities and gold as investors exit dollar-carry trade positions.

In reality, it is more complex then this. However, looking at the charts below of SPY (S&P 500), GLD (gold), UUP (U.S. bullish dollar), and the ten-year Treasury, you can see recent (un)correlations of especially the former 3 markets.

In addition, the MACD on SPY, which I've been watching for awhile, is showing negative divergence, a sign that this rally could be weakening which in turn could mean additional short-term strength for the dollar. The dollar broke above the 50 day moving average, which is a key indicator to watch in all markets to tell you the intermediate trend.


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