Gold sets stage for AUD/USD pop

The price of gold is used as a proxy for the Australian dollar (Aussie) in general and the AUD/USD pair in particular. The pair’s linkage to gold stems from the fact that Australia exports a lot of the yellow metal. In addition to gold, Australia exports coal, alumina, iron ore, and several agricultural products. Australia’s heavy load of commodity exports has earned the Aussie the label of a “commodity currency.” Other such currencies include the New Zealand and Canadian dollar’s.

A big part of the rally in the AUD/USD from 2002 through 2005 was attributed to the rise in commodity prices, particularly gold. During the aforementioned period, the AUD/USD rose by about 27 cents, or roughly 2700 pips!

As commodity prices increase, the demand for currencies of the countries that export commodities will also increase. The increase in demand for the currency will typically lead to strength, unless some other factor such as political instability or falling interest rates trump the rising demand due to commodity exports.

The price of gold has recently been extremely volatile, dropping by about $175 per ounce through May and June. Gold then staged an impressive rally from late June through earlier this month, when it bounced back by more than $100 an ounce.


As you can see on the chart of August Gold (GC0608), it’s been a wild summer. The price recently rebounded from 61.8 percent retracement at $600 an ounce, which set-up the formation of a triangle.

Whether the triangle breaks higher or lower remains to be seen. But such a break could be confirmed using the standard Fibonacci retracement bracket on the chart.

The volatility in the price of gold has led to many trend-following and swing trading opportunities in the AUD/USD. Most recently, the bounce in gold set-up a breakout in the AUD/USD above horizontal resistance at 0.7560.

Overlaying the Fibonacci arcs on the AUD/USD, you can see the advance through the 50 percent arc has positioned the pair for its next leg higher. Quite simply: Look for higher gold prices to help the AUD/USD past horizontal resistance, and beyond the third arc.


Eric Utley is a full-time trader with over a decade of experience in equities, equity options, futures, and currencies. He specializes in trading currencies, using a combination of quantitative, technical, and fundamental analysis. He is the lead contributor to, manages a currency trading blog, produces educational programs, and hosts a weekly online seminar.