Cash or carry?

SOME relationships are made in investing heaven. Opposites are attractive and this has made the gold and US dollar trade a reliable investment strategy. Put simply, gold goes up when the US dollar goes down and gold falls when the US dollar rises. It's not an exact correlation with matched turning points in the trend. However, it is a broad correlation that has stood the test of time.

As the US dollar Index crashed from its US$1.21 peak in 2002 to wallow around US$0.80 from 2008 to 2014, the gold price rose steadily from US$300 to more than US$1,800. Albeit with some bumps and lumps, the US dollar index has been in a broad uptrend since 2014 with the latest rally taking it to US$0.97. After an initial and expected fall, the gold price has changed direction in recent weeks. Like the US dollar index, the gold price has developed a rally. This poses a dilemma for investors who have grown accustomed to the relationship trade - long US dollar, short gold.

Is it time to take the cash, back the continued rise in the US dollar and carry a short trade in gold?