Philadelphia Fed Survey and Daily Gold Change Correlation

• In the past two years the Philadelphia Fed Survey announcement has caused no correlated activity in the price of Gold for that day.
• On reporting, the %-age change for the rest of the day (10 am to 4 pm) correlates at a -38 % and the R² = 0.15.
• The best correlations for all the data points in the last two years show that the consensus correlates well with the actual announcement at 92.9%.

At this time the Philadelphia Fed Survey does not appear to be a useful input tool for predicting daily gold price movement.

The Dollar Gold Correlation

With data from the past 3 years, I was able to find a negative correlation between the closing price of th XAU gold index and the UUP Dollar ETF.

What this basically says is that when the dollar goes up in value, gold goes down in value (or when the dollar goes down, gold goes up) - is there a predictive correlation between one or the other.  They influence and balance each other out during the trading day.  Looking at the scatter plot, there are definitely bunches of values that are grouped.  The next step would be to see when they are grouped and when they are not.

In this last graph we see that the period from March 2009 to February 2010 (inclusive) was the most highly-correlated of the data examined.  The correlation was a negative correlation. From March 2010 to the present (November 2010) we see that there is a weaker correlation between gold and the dollar.

Conclusion: most of the time the dollar and gold are negatively correlated.

Now to figure out why there are changes in the correlation - why do both instruments fall or rise in tandem?  If the dollar rises it means people are trading in their foreign currencies.  If gold also rises it means people are trading in their dollars.  So a guy with Euros buys dollars and then buys gold?

So the next step in this correlation puzzle would be to see where large FX holders traded in their stuff for gold.

Initial Belief: Markets are not Random

This blog is an online place for me to put my general investment findings, and encourage people to comment and help me learn about investing.  Although I have invested for many years, I have found only a few strategies that work for some periods.  I haven't found anything that works all the time.  The challenge with this blog is to find a general investment strategy that works (out paces inflation and positive after-tax return) in all parts of the business cycle.

I recently completed an EMBA from the Richard Ivey School of Business at the University of Western Ontario.  I had a great opportunity to learn about many things, but several courses taught me new ways to look at company financing, management accounting, hedging, financial risk management, and global economics.

There is so little I know.  This blog aims to edukate me!

Welcome.

I do not endorse using any of these ideas for investment purposes.  Please educate yourself from reliable sources and take council from the proper learned and responsible people.  I am not offering you advice!