Is gold a good neutral indicator?

[GoldChild]

Hi,

I'm totally new to forex and have not yet traded. I only became interested when I noticed something recently (May 8th)

I have recently bought into gold (vs $) and was very pleased with its 2% rise.
According to Reuters this was explained by the Dollar's weakness and yet when I looked at daily charts on http://www.goldstock.co.uk I was surprised to notice that even though the Euro had gained ~1.3% against the Dollar, the graph of gold in Euros was near identical to that in Dollars, both up by ~2%.

It was only this that made me finally work out some numbers for this triangle of currencies in the way I've briefly thought about whenever I've thought of forex markets.

At the open gold was 297Eu/oz or $341 and 1 Euro was ~1.13 Dollars. So to buy $341 of gold (1oz) you needed 301.77 Euros. That's 4.77 Euros more than the Euro price.

At the close gold was 302.92Eu/oz or $347 and 1 Euro was ~1.4665 Dollars. So to buy $347 of gold (1oz) would cost 302.62 Euros. Now really close to the Euro price.

It was only after noticing this close match that I thought that maybe I could have used the discrepency in gold prices to predict the almost exact shift in the the euro/dollar and made money there too.

My questions are:
Does this happen often? (A rate change almost exactly correcting for a price discrepency) or was it a coincidence that I'm making too much of because it was the first time I've looked at forex (beginner's luck)?
If so, is this a useful trading tactic? (How reliable an indicator?)
How/why did the gold prices get so out of sync in the first place? (How likely is the opportunity to reoccur?)
Is there a better reference for comparing the major currencies?

[MattH]

The only question I have is:

in this scenario you seem to have 2 unprediactable variables

therefore how do you know that the discrepency will be closed by the EUR/$ moving or by the Gold/$ moving.

Maybe I've misunderstood.
Matt

[GoldChild]

That's a good point. It was seeing the adjustment in EUR/$ rather than Gold/$ that alerted me too it as I'd have expected the change in the Gold/$ if the main factor was in fact the weakening dollar.

Couldn't you 'bet both ways' by combining 2 trades? Not sure how? One should move in your favour and the other maybe go unchanged?

[MattH]

Just basic Hedging then. Not something I personally recommend or have experience in sorry.

[Marty]

This is a no-boner.

XAU, XAG follows Dollar,Euro, CHF,? or vice-versa, its impossible to say if there is any correlation between the metals and currencies.

Some say it does, some don't..You could agrue this point till you are blue in the face and at the end of the day its impossible to prove or disprove.

Its very similar to saying does Technical Analysis work.

[GoldChild]

I think it's more fundamental than that. I'm not talking about the rise in the gold price but the discrepency in price that existing at the start of the day.

I thought a lot of forex traders took advantage of these arbitrage opportunities. There's an explanation of what I mean at http://www.mises.org/fullstory.asp?control=1233 that just happens to use potatoes instead of gold.

If you can buy gold cheaper in the US by changing your euros into dollars first than buying directly in euros that 'deviation from parity' in the price will close.

Trading on it through forex markets just saves you physically 'carrying' your euros and the gold back and forth across the atlantic.