Best of the Week
Most Popular
1.Gold And Silver Voodoo Analysis Price Forecasts - Austin_Galt
2.UK Saved From I.S. Threat But Scottish Independence Nightmare is Not Over! - Nadeem_Walayat
3.Silver Price At or Very Close to an Important Low - Clive_Maund
4.Gold And Silver - PetroDollar On Its Deathbed? PMs About To Rally? No - Michael_Noonan
5.Gold and Silver Bear Phase III Dead Ahead - Rambus_Chartology
6.Stock Market Major Selloff Looms - Zeal_LLC
7.Inflate or Die! When Leverage Fails and Market Hope Turns to Fear - Ty_Andros
8.Gold Price Very Close to an Important Low - Clive_Maund
9.Market Forecasts for Stocks, Gold, Silver, Commodities, Financials and Currencies - EWI
10.U.S. Aggression - Will Russia and China Hold Their Fire? - Paul_Craig_Roberts
Last 5 days
Stock Market Wil-e-Coyote Moment May Have Arrived - 1st Oct 14
Europe Teetering the Ddge of a "Japan-style" Deflation - 30th Sept 14
Economists Economic Atonement - 30th Sept 14
Everything You Need to Know About the Stock Market S&P Index Until Christmas - 30th Sept 14
Singapore Becoming Global Gold Hub - Launches Kilo Bar Contract And Gold ATMs - 30th Sept 14
Germany Fights on Two Fronts to Preserve the Eurozone - 30th Sept 14
Turn the Tables on the Gold and Silver Market Manipulators - 30th Sept 14
U.S. 2014 Election Business as Usual - 30th Sept 14
Gold - Time to Buy the Dip? - 30th Sept 14
Urging Investors to Stay Liquid for the Coming Gold Stocks Boom - 30th Sept 14
The Japanese Deflation Myth and the Yen’s Slump - 29th Sept 14
Epic Investor Optimism that Can Be Reversed Only by a Huge Stocks Bear Market - 29th Sept 14
Russia’s Gokhran Buying Gold Bullion In 2014 and Will Buy Palladium In 2015 - 29th Sept 14
The End of Monetary Policy - 29th Sept 14
Here's What Rising Interest Rates Really Do to Your Shares - 29th Sept 14
Is a Credible Stock Market Top Forming? - 29th Sept 14
Silver Price At or Very Close to an Important Low - 29th Sept 14
Gold Price Very Close to an Important Low - 29th Sept 14
Nihilism And The Unknown Future - 29th Sept 14
Stock Market S&P, NAS Change In Trend? None Apparent, But A Caveat - 29th Sept 14
UK Saved From I.S. Threat But Scottish Independence Nightmare is Not Over! - 29th Sept 14
U.S. Aggression - Will Russia and China Hold Their Fire? - 28th Sept 14
Currency Wars and the Death of the Euro - Audio - 28th Sept 14
Obscure Maritime Law Practically “Guarantees” Profits for These Energy Companies - 28th Sept 14
Stock Market Primary IV Underway? - 27th Sept 14
Darwin And The Climate Apocalypse - 27th Sept 14
The Global Middle Class and Copper Consumption, A Stop Spike Event - 27th Sept 14
Can Money Save The Climate? - 27th Sept 14
Gold And Silver - PetroDollar On Its Deathbed? PMs About To Rally? No - 27th Sept 14
Debt and Inflation Consquences of American Fear - 27th Sept 14
U.S. and Global Confidence are in Divergence - So Are Stock Markets - 27th Sept 14
Are U.S. Cars About to Crash? - 27th Sept 14
Why the U.S. Created and Armed ISIS From Libya to Syria - 27th Sept 14
Stock Market vs the Developing Bear Market for Liberal Democracy? - 26th Sept 14
Stock Market Major Selloff Looms - 26th Sept 14
How My Charts Uncovered Two Big Stocks That Are Soaring Like Small Caps - 26th Sept 14
What Cycles Reveal About Stock Market Crash - 26th Sept 14
Gold Not A Safe Haven On Terrorism, Middle East Bombing, Russia ... Yet - 26th Sept 14
Valuing Gold and Turkey Farming - 26th Sept 14
Gold $1200 Underpinned by Physical Demand - 26th Sept 14
Inflate or Die! When Leverage Fails and Market Hope Turns to Fear - 26th Sept 14
Market Forecasts for Stocks, Gold, Silver, Commodities, Financials and Currencies - 26th Sept 14
Gold and Silver Bear Phase III Dead Ahead - 26th Sept 14
The Home Depot Breach Boils Our Blood – and It Should - 26th Sept 14
Why the Pundits are Wrong About Crude Oil Prices - 26th Sept 14
Where’s the Economic Growth? - 26th Sept 14
Stock Market Future Bull - 25th Sept 14
The Specter of Global Debt Default is Once Again Rearing its Head - 25th Sept 14
All Major Market Analysis and Forecasts Investor Open House has Started! - 25th Sept 14
Federal Reserve Policies Cause Booms and Busts - 25th Sept 14
Currency Wars Deepen - Russia, Kazakhstan Buy Very Large 30 Tons Of Gold In August - 25th Sept 14
Strong U.S. Dollar Pressures Gold - 25th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Most Exciting Event in the History of Technical Analysis

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

© 2005-2014 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

Free Report - Financial Markets 2014