Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

What's the Impact on Gold Price of a Falling U.S. Dollar

Commodities / Gold and Silver 2010 Sep 12, 2010 - 12:25 PM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleIs it true that the dollar, the yen and Swiss franc may be better investments than gold if the world economy slips back into recession? That’s the claim of New York University Professor Nouriel Roubini, famous for having predicted the US housing bust and subsequent recession more than a year before they happened.


Roubini told European economic leaders at a recent conference in Italy that the “US has run out of bullets.” More quantitative easing (bond purchases) by the Federal Reserve is not going to make any difference. Treasury yields are already down to 2.5pc yet credit spreads are widening again. Monetary policy can boost liquidity but it can’t deal with solvency problems. During the conference Roubini said the dollar, the yen, and the Swiss franc may be better investments than gold if the world economy slips back into recession.

Gold will be one of the preferred safe haven investments in the case of a double dip recession,  "But in that situation, things like the dollar, the yen, the Swiss franc have more upside in a situation of rising risk aversion because they are much more liquid than the gold market", he said.

As evidence mounts that the U.S. rebound is running out of steam, we see evidence of investors rushing for bonds and other investments deemed to be secure. The price of gold has risen 14 percent this year. The Swiss franc rose to a record against the euro on Aug. 31 and the yen last month reached its strongest level against the dollar since 1995.

Roubini said:

I believe that gold is going to trade around current level. There are two extreme events that lead to a spike in gold. One is inflation, but we have no inflation in advanced economies. If anything, there is a risk of deflation. The other event in which gold prices go up is the risk of a global financial meltdown, and that tail risk has been reduced because we backstopped the financial system.

Without question Roubini was right about his predictions on the US housing bubble. That does not guarantee that he is right on gold. He doesn’t like gold. He got into a famous media fight with Jim Rogers last year when he said Rogers’ prediction that gold will reach at least $2,000 an ounce is “utter nonsense.” At that time he said maybe gold will reach $1,100.

In fact, in a 2007 video interview on TheStreet.com Roubini predicted gold prices will weaken. Roubini has been proved wrong on gold over several years. Now all we have to do is wait to see if Rogers, who predicted the start of the commodity rally in 1999, is right about this $2,000 target for gold.
 
In any case, it might turn out that Roubini will be right at some point about dollar, yen and Swiss france outperforming gold. But we believe that in a long range time frame, nothing will beat gold over the next few years. We don't think that gold would form the final top any lower than $5000, and silver any lower than $100.

For projections of what will happen in the near term in the precious metals market, let’s turn to the technical portion of the essay. This week the USD Index might be forming bearish head-and-shoulders formation and gold stocks are failing to break above the rising resistance line, just like gold is.

Let’s begin with analysis of the Euro Index (charts courtesy by http://stockcharts.com.)

As you may see on the chart below gold has recently moved more or less against the Euro.



At this point the odds favor the outcome that the correction has ended and we may see the rally in the euro resume very soon, which consequently could lead to lower values of gold, silver, and mining stocks.

In the long-term USD Index chart, there has been little excitement, much as was the case discussed previously in the Euro Index activity. Since the euro accounts for more than 50% of the USD Index activity, it is not surprising to see lackluster performance in both markets. A strong move in either direction normally has significant impact on the other index and, likewise, lack of direction breeds the same.

There has been somewhat sideways movement for some time now and from this perspective there is little evidence that any dramatic change will be seen soon. The local top may be already in. Should this not be the case, however, it is not likely that the index will move past the 86-level as the uncertainty across global markets appears to be contributing to minimal strength in the USD Index.

The precious metals sector has been somewhat in tune with the USD Index of late, taking weeks into account. For this reason, there is a possibility that any decline in the dollar’s value could negatively impact gold, silver, and mining stocks.

The short-term USD Index chart shows additional head-and-shoulders pattern development this week. Index levels moved slightly higher as for the fifth week in a row, the trend was the opposite of the previous week, perhaps forming second shoulder. Its completion could mean that USD Index is likely to move decisively below 82-level which is now the neck level.

Since the beginning of August, small declines have been seen with weekly increases sandwiched in between. In fact, Thursday’s closing index level was virtually identical to the close of both four and seven weeks ago. Additional declines at this time, especially if the index moves below the 82-level (the "neck" level of the head-and-shoulders formation) could indicate further declines as a continuation of that, which began in June.

Normally, (during most years of the current bull market) declines in the USD Index are positive news for precious metals since they are priced in US dollars. This has however, not been the case in the recent months as gold, silver and mining stocks seem to have been responding to the weakness in the euro rather than to the US dollar. The fact that especially in recent weeks, but generally the whole year, the precious metals have been euro weakness driven speaks volumes about the influence of the European investors on world-wide prices of gold, silver, and other precious metals.

The level of the USD Index is currently at its 50-day moving average, which proved to be a critical resistance/support level many times in the past. In addition, a likely turning point is at hand as indicated by the vertical black lines in the short-term chart.

The 50-day moving average has historically provided both support and resistance especially in recent several weeks. Given the positive relationship between the dollar and precious metals for the past month or so, there is a good possibility that a local top may soon emerge or actually be at hand in the metals markets.

With lackluster moves in both the Euro Index and USD Index continuing for yet another week, major impacts upon gold, silver and mining stocks have simply not been evident. The bearish head-and-shoulders pattern which continues to develop in the short-term USD Index chart may possibly begin to have a negative influence on the precious metal sector. For this reason, gold, silver and mining stocks must be closely watched to enable immediate identification of imminent local tops.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife