Summary:

For most investors the single largest foreign exchange risk remains a dollar collapse. But this year’s divergence of gold and oil suggests the greenback will stay supported in the currency markets by safe haven flows. 

Historically oil and gold have moved together. For example the oil shocks of the 1970s were accompanied by surges in gold while both commodities were hurt during the Asian crisis. But now oil is weak while gold and the dollar are rallying as investors seek safe havens. 

This is highly unusual. Over the course of this decade both commodities have been negatively correlated with the greenback as sovereign wealth funds have diversified aggressively out of their petrodollars while investors worried about the risks of a dollar collapse have bought gold. The shift now in these relationships shows how the greenback is benefiting further from risk aversion and slumping global growth this year.