Dollar Loses Hold Over Gold as Greek Drama Fuels Demand
Bloomberg - Feb 24, 2015
Emotion is trumping the dollar in the gold market.
Every quarter for the past three years, the metal has moved in the opposite direction of the currency. That trend is being upended in 2015. Investors have bought bullion as a hedge against political turmoil in Europe, even as the dollar rose on prospects of higher U.S. interest rates. The inverse correlation between the two assets, which in December was the strongest in a year, is now half of its average over the past decade.
The risk of a default by Greece that could unravel the European Union helped fuel demand for gold as a haven and boosted market volatility. While bullion pared some gains this month as Greece negotiated an extension of a bailout package, holdings in exchange-traded funds backed by the metal rebounded from a five-year low in mid-January to the highest since October, even as the Federal Reserve signals its first interest-rate increase since 2006.
