Top Currencies Vs. Gold: Which Fiat Could Beat Gold in 2017?

This is a traditional post with a performance review of top currencies versus gold at the end of the year.

The fiat money is represented by 7 currencies: US Dollar (USD) and 6 components of the US Dollar Index (DXY) placed by weight: Euro (EUR), Japanese yen (JPY), British Pound (GBP), Canadian Dollar (CAD), Swedish Krona (SEK) and the Swiss Franc (CHF).

Chart 1. Year-To-Date Dynamics Of Top 7 Currencies Versus Gold: The Only Winner

Diagram by Aibek Burabayev; Source: tradingview.com

This year the gold was almost as strong as last year compared to the top currencies and only one rival could escape from its death grip. The Euro was also very strong this year as the Euro Index scored a hefty 7.26% gain against its peers (USD, GBP, JPY, CHF). It helped the euro to outweigh gold by 2%. Last year the EUR finished on 5th place.

Below is the full ranking for Y2017 with the Y2016 places in the brackets.

1. EUR +2% (#5)
2. SEK -1% (#6)
3. GBP -2% (#7)
4. CAD -5% (#1)
5. CHF -7% (#4) and JPY -7% (#1)
6. USD -10% (#2)

The top loser is the US dollar, and that’s not a surprise as its DXY index lost almost 9% year-to-date. What undermined the top currency? Europe looks better this year and it attracts investors into a single currency, which is the main opponent of the US dollar and its gain means pain for the dollar. Another factor is the political turmoil and the uncertainty about the prospects of the economy in the US. And last, but not the least, is the clash in foreign policy with North Korea. Investors don’t consider the US dollar to be safe these days as they usually have in the past.

In the chart below I would like to show you the prospects of the winning currency against gold.

Chart 2. Gold Vs. EUR Monthly: On The Edge

Chart courtesy of tradingview.comChart courtesy of tradingview.com

Gold is currently in the long-lasting consolidation, which ideally fits into the black uptrend channel. It is quite deep as metal could win back more than three-quarters of the losses from the drop which occurred between Y2012 and Y2014 hitting €1245 level on the upside of the uptrend in Y2016. The price couldn’t surpass the trend resistance and reversed down to stop right above the support of the channel.

This month gold finally tested the downside but failed as the price remains in the uptrend. The candle of the current month is very important as price is on the edge of the trendline support, it has a small body and short shadows, if this situation stays unchanged then we could see a reversal to the upside in Y2018.

The RSI line is flat around the 50 level “waterline,” it should break above this resistance to support the price reversal to the upside. In this case, the consolidation becomes more complex, and gold could strengthen against the euro and potentially reach the previous top at the €1387 mark.

On the other hand, if bears can manage to crack current support and push the price lower then we could reach the previous major low at the €857 level. And this could be just a completion of the first leg of an even more complex large correction.

There is no clue for a potential winner in 2018 in this pair; it could take another quarter for market forces to support either side.

Happy New Year and Intelligent trades!

Aibek Burabayev
INO.com Contributor, Metals

Disclosure: This contributor has no positions in any stocks mentioned in this article. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.