Gold: How to Trade It Ahead of January’s Jobs Report

To some investors, gold is religion. We appreciate the long-term bull case for gold. But to suggest you should buy it at any price misses a fundamental consideration. Gold is an investment like any other. Risk manage your position accordingly. On that front, you need to watch the U.S. dollar. “When the dollar is signaling oversold, gold is usually signaling overbought,” says Hedgeye CEO Keith McCullough in the video from The Macro Show above. The correlation is obvious. Over the past 120 days of trading, the U.S. dollar to gold correlation is -0.95. In other words, if the dollar is going up, gold is going down and vice versa. It’s all pretty simple. The U.S. dollar index rose +5.5% in the aftermath of Donald Trump’s election day victory to the highs in December. Gold fell -11% over that period. The yellow metal’s price rallied at the turn of 2017 (it’s still down -5% since Election Day) but that’s because the dollar weakened. WHAT NOW? “If I’m right and the Jobs Report is a little better than expected tomorrow, I’m betting that’s dollar bullish.” In other words, stay away from gold.