Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Yikes! Major Reversal in Fortunes for the US Dollar and Gold

Currencies / US Dollar Aug 15, 2008 - 05:52 PM GMT

By: Black_Swan

Currencies Diamond Rated - Best Financial Markets Analysis ArticleTell us again about the safe haven qualities of gold? It has been going straight down ever since Russia decided to spread its wings again. Maybe it’s just a correction. But maybe it is, as it has always seemed to us, that gold is only a reflection of global purchasing power that simply ebbs and flows with the world’s money and its safe have reputation is just that, reputation. And in case anyone was confused as to the world’s money; it is the financial gurus’ favorite whipping boy—the good old US dollar.


And aghast they are lamenting over the possibility that their favorite asset—gold—may have topped and, dare we say it again, the US dollar may have bottomed. We’ve laid out our reasons why the dollar may have bottomed many times over the last few months in these pages. If we are right about a dollar bottomed, we have high confidence gold has topped! Global conflict ain’t going to save the gold bugs if the dollar trend has changed, unless of course it is “different this time.”

In almost every major time frame (though exception do apply and 2005 was one of them) in which you compare gold to the dollar, you will see a simple correlation—dollar up gold down or dollar down gold up. Again, in our book gold is the reflection of global purchasing power against real stuff and as it is priced in the world’s money--$’s—it must go up when the value of the world’s money is going down, and vice versa.

We have attached our long-term chart comparing gold to the US dollar index for your review; readers that have been with us for a while will recognize it.

Gold is the blue line, the US$ index is the black line. Notice too we added the note “credit crunch” at the bottom right of the chart as the possible key global macro event ushering a change in the long-term trend in the dollar. Why the credit crunch? Isn’t that supposed to hurt the US more than anyone else?

Here’s our simple logic why we think, though we won’t know without our elusive hindsight, the credit crunch may have done the trick for the dollar:

Global deleveraging is forcing money flow from the periphery to the center. And the center is where the deepest and most efficient capital markets lie. And that is in the US.

US$ Index vs. Gold Monthly:

Now, all this being said, the dollar bears still have a solid argument when they say this move in the dollar is simply a small bounce in long-term bear market that is far from over. This argument is still in play. But it becomes less and less in play. Already the US dollar has broken above its long-term down trend going back to 2001 as you can see in the chart below:

Using simple trend line analysis, the key weekly resistance comes in at around 8209. You will notice that the last time we had a big dollar correction in a bear market was back in the beginning of 2005. The dollar rallied for 11 months. And using the same simple trend line analysis, it closely defined key resistance for the dollar index then (red trend lines in the chart on the next page)…

So, although we have high confidence in our story, we have to respect the idea of a bounce in a bear market until the market says otherwise. And that otherwise is above 8200 on the US$ index.

What adds a bit more weight to our view the bottom is in this time, as opposed to the 2005 time frame is gold. During 2005, when the dollar was correcting for eleven months, it was not correlated with gold i.e. gold was rising along with the dollar then, unlike now.

Whether we are right about this, or dead wrong, we have to admit to strong case of Schadenfreude (satisfaction or pleasure felt at someone else's misfortune) at the moment. Satisfaction that all those cocky mindless dollar bears that believe(d) the world’s money could only go one way for ever—down are finally feeling some pain.

Keep in mind this is our long-term view. Traders have to consider at some point here, and maybe it is today, this dollar run will need to be congested. The buck is extremely overbought on the near-term price oscillators. But, that said, when a major trend change is in play based on a conversion flow of expectations about the alignment of global fundamentals, the technical stuff takes a back seat. In short, if you are trading against this trend be quick and keep stops tight.

Have a great weekend!

Jack Crooks

Black Swan Capital LLC

http://www.blackswantrading.com/

Black Swan Capital's Currency Snapshot is strictly an informational publication and does not provide individual, customized investment advice. The money you allocate to futures or forex should be strictly the money you can afford to risk. Detailed disclaimer can be found at http://www.blackswantrading.com/disclaimer.html

Currency Currents is available for only $49 per year. Just visit the sign-up page on our website to subscribe: http://www.blackswantrading.com/Currency_Currents.html

Black Swan Archive

© 2005-2019 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

6 Critical Money Making Rules