Best of the Week
Most Popular
1.UK House Prices Momentum Crash Threatens Mini Bear Market 2017 - Nadeem_Walayat
2.Perfect Storm - This Fourth Turning has Over a Decade of Continuous Storms to Come - James_Quinn
3.UK House Prices Momentum Crash Warns of 2017 Bear Market - Video - Nadeem_Walayat
4.Billionaire Investors Backing A Marijuana Boom In 2017 - OilPrice_Com
5.Emerging Markets & Basic Materials Stocks Breaking Out Together - Rambus_Chartology
6.Global Currency Reserve At Risk - Jim_Willie_CB
7.Gold and Silver: Your Stomach Is Probably Wrenching Right Now - The_Gold_Report
8.Warning: The Fed Is Preparing to Crash the Financial System Again - Graham_Summers
9.Basic Materials and Commodities Analysis and Trend Forecasts - Rambus_Chartology
10.Discover Why A Major American Revolution Is Brewing - Harry_Dent
Last 7 days
You Are Being Lied To About “Low” Gold Demand - 19th Aug 17
This is Why Cocoa's Crash Was a Perfect Setup - 19th Aug 17
Gold, Silver Consolidate On Last Weeks Gains, Palladium Surges 36% YTD To 16 Year High - 19th Aug 17
North Korea Is Far From Being Irrational… It Has A Plan - 18th Aug 17
US Civil War - FUNCTIONAL ILLITERATES TRYING TO ERASE HISTORY - 18th Aug 17
Bitcoin Hits New All-Time High Over $4,400 As It Catches Paypal In Total Market Cap - 17th Aug 17
3 Psychological Ingredients behind Great Web Content - 17th Aug 17
The War on Cash - Rogoff, Orwell and Kafka - 17th Aug 17
The Stock Market Guns of August, Trade Set-Up & Removing your Rose Tinted Glasses - 16th Aug 17
Stocks, Bonds, Interest Rates, and Serbia, Camp Kotok 2017 - 16th Aug 17
U.S. Stock Market: Sunrise ... Sunset - 16th Aug 17
The Next Tech Crash Could Delay Your Retirement by a Decade - 15th Aug 17
Gold and Silver Precious Metals Nearing Breakout - 15th Aug 17
North Korea Showdown: Pivotal Market Turning Point - 15th Aug 17
Tech Stocks DOT COM Bubble Do-Over? - 14th Aug 17
Deep State Conspiracy or Chaos - 14th Aug 17
From the Trans-Atlantic Axis and the Trans-Asian Axis - 14th Aug 17
Stock Market Intermediate Correction Underway - 14th Aug 17
The Islamic State Jihadi Pivot to Asia - 13th Aug 17
Potential Pivots Upcoming for Stocks and Gold - 13th Aug 17
North Korean Chinese Proxy vs US Military Empire Trending Towards Nuclear War! - 12th Aug 17
Gold Stocks Coiled Spring - 12th Aug 17
Neil Howe: The Amazon-Walmart Rivalry Will Determine the Future of Retail - 12th Aug 17
How to Alton Towers Half Price Discount Entry 2017 and 2018, Any Time, No Pre-Booking! - 12th Aug 17
Top 3 Technical Trading Tools Part 2: Relative Strength Index (RSI) - 11th Aug 17
What Makes Women Better Investors - 11th Aug 17
Crude Oil Price Precious Metals Link in August - 11th Aug 17
Influencer Marketing Predictions All Businesses Should Take Into Account - 11th Aug 17
Really Bad Ideas - Government Debt Isn’t Actually Debt - 10th Aug 17
Gold Sees Safe Haven Gains On Trump “Fire and Fury” Threat - 9th Aug 17
Why Is The Stock Market Not Trading On Fundamentals Lately? - 9th Aug 17
USD/CAD - Can We Trust This Breakout? - 9th Aug 17
New Monthly Rebate to Help Reduce Your Trading Costs - 9th Aug 17
Stock Market Divergences Are Now Appearing! - 9th Aug 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

Next US Dollar Peak is Catalyst for Gold, Silver and Hard Assets

Commodities / Gold and Silver 2013 Mar 22, 2013 - 11:27 AM GMT

By: Jordan_Roy_Byrne

Commodities

Our title seems obvious. We all know that the US$ tends to be negatively correlated with commodity prices. This is true in the short-term but not always so over the long-term. The US$ index is currently nearing 83. It's at the same level it was in 2007 when Gold was trading in the $600s and the CCI (currently 554) was trading near 400. The US$ index is near the same level it was at the end of 2005 when Gold was trading below $400 and the CCI was trading below 300. This tells us that the bull market in precious and hard assets goes way beyond simple US$ weakness. It is driven by long-term supply and demand dynamics as well as rampant monetary inflation from global parties and not just the USA. Throughout this bull market, key advances and turning points have originated from strength against foreign currencies and then sustained strength amid textbook US$ weakness.


First let's take a look at Gold priced in US$ and then Gold priced against the inverse of the US$ (a foreign currency basket represented by the ETF UDN). Note that Gold/UDN is often a leading indicator for Gold in US$. Gold/UND bottomed in the summer of 2008 and made a higher low in October, when Gold bottomed. Gold/UDN broke to new highs in early 2009 while Gold didn't break to new highs until September 2009. The same happened in early 2010 as Gold/UDN brokeout first. At present, there are no major divergences but Gold/UDN has been quite a bit stronger than Gold in recent weeks.

Gold:UDN Chart

Meanwhile, we have similar observations when looking at commodities via the CCI and UDN. During 2010 CCI/UDN broke to new highs in the spring while CCI didn't breakout until September. CCI/UDN peaked ahead of the CCI by a few months in early 2011. Currently, CCI/UDN is showing a positive divergence. A close above 22 would be quite telling as commodities would be at 18-month highs when priced against foreign currencies.

CCI:UDN Chart

In terms of sentiment, we already know the depths of Gold and the heights of the equity market. The chart below (source) shows the CCI with the positioning of fund managers as surveyed by the monthly Bank of America Merrill Lynch fund manager survey. The current weighting of commodities (in the average fund manager portfolio) is the second lowest in four years!

Fund managers Commodity Weighting

Meanwhile, as you'd expect given the skepticism on commodities, sentiment for Uncle Buck has grown more bullish. As per sentimentrader.com, public opinion is currently at 75% bulls. Peaks in the US$ have occurred with public opinion at 80% bulls. The US$ has a bit more upside until resistance at 87-88.

US Dollar Index Public Opinion Chart

Moving back to our original point, the US$ plays an important role in commodity markets but is not the sole determinant of exact peaks and bottoms. In fact, the US$ is usually a lagging indicator for Gold and gold stocks as shown below. We plot the US$ inverse, Gold and the HUI. The blue line shows the important bottoms in Gold and the HUI and the red line shows the corresponding bottoms in the US$ inverse. Essentially, the precious metals market will form major bottoms ahead of tops in the US$.

Gold Weekly Chart

What does all this mean going forward? We believe that 2013 will mark an important transition year as the equity market is likely to make a cyclical peak while commodities make an important cyclical bottom. We already know that sentiment on commodities and precious metals is at dumpster diver type levels. Adjust for the US$ strength and it's clear that these markets are showing some short-term strength amid poor sentiment. That is a positive sign and one we often see ahead of key turning points in these markets. However, the US$ has some more upside before its next important peak. Precious metals have found a bottom and are moving higher, but they won't embark on their next big move until the US$ peaks. We've carefully added to longs in recent weeks but will remain patient in our anticipation of the next big leg higher later this year.

If you'd be interested in professional guidance in this endeavor, then we invite you to learn more about our service.

Good Luck!

Email: Jordan@TheDailyGold.com
Service Link: http://thedailygold.com/premium

Bio: Jordan Roy-Byrne, CMT  is a Chartered Market Technician, a member of the Market Technicians Association and from 2010-2013 an official contributor to the CME Group, the largest futures exchange in the world. He is the publisher and editor of TheDailyGold Premium, a publication which emphaszies market timing and stock selection for the sophisticated investor.  Jordan's work has been featured in CNBC, Barrons, Financial Times Alphaville, and his editorials are regularly published in 321gold, Gold-Eagle, FinancialSense, GoldSeek, Kitco and Yahoo Finance. He is quoted regularly in Barrons. Jordan was a speaker at PDAC 2012, the largest mining conference in the world.

Jordan Roy-Byrne Archive

© 2005-2017 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