Over the last couple of days I have talked about the hourly gold price and looked at a 5 wave Fibonacci cluster that appeared and was respected by the price during the Friday evening session. When you start to look across the metals market you can see that there is some distinct correlations occuring that may well be strengthening from recent levels.
Whilst there is an expectation that there will be a correlation between US dollar denominated assets the levels that we are seeing at the moment show that there is an extra level of correlation behaviour occuring – and some of the precious metals are showing this in a significant fashion.
At basically the same time as the 5 wave setup was occuring on the gold price – click here to see the setup – there was a very similar setup occuring on the silver price which you can see in the chart below:
You can see that there is a distinct similarity between the 2 chart setups. If we extend this study a little further and look in terms of daily correlation figures over the last 12 months you can see that there has been a recent increase in the overall correlation of gold and silver which you can see in the chart below:
So at current levels you can see that we are running at a high for the last 12 months with a correlation coefficient of 0.8 for the entire 12 months. Traders will need to think about the drivers for this type of activity due to the fact that movement in one market can have a demonstrably large impact on trades in another.
We will continue to look at the gold and the silver 5 wave setups – at this stage you can see just how similar they are – for both signs of any change in direction but of importance too any sign of a correlation reduction. On this same note this article from the FT was linked on twitter by NicTrades this morning and it makes a very interesting discussion about the idea of ‘risk on’ and ‘risk off’ so the fairly binary feeling of risk tolerance at the moment is clearly a big driver.
Let me know your thoughts.
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All the best,