Wednesday, March 10, 2010

How to factor out the USD from the "true" picture

How much does the $USD influence stock and commodity prices? Are prices going up because the USD is going down or vice versa? We want to factor out the effect of the USD on the supply - demand curve. An easy way to do that is to plot a ratio of the equity against UDN (PowerShares DB US Dollar Bearish Fund).

Here's an example using GLD:

Now we factor out the USD:

Factoring out the $USD, you get a much clearer and more accurate picture of supply-demand.

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