Dollar vs. Gold - Can We Trust This Change? 38 comments
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We've been watching the dollar vs. gold very carefully, and the action the past few days has been interesting to say the least. The action today, if you trust the charts, could be signaling a complete change in character. We've been saying all this printing of paper will be a disaster for the dollar (eventually), and a boon to gold (in theory)... other commodities as well (theoretically). This is the "reinflation" trade.
What has been perplexing people is the strength in the dollar since late summer, despite the U.S. being the nexis of the world's problems. In any other country where a financial crisis is born, the currency would be abandonded. Overlay this with the interest rate cuts - which should be yet another knife in the back of the dollar - all things being equal, capital should flow where it is treated better (higher rates), not treated the worst.
This is what the textbook says - however reality has given us the exact opposite. The dollar has rallied for months on end. Why? The theories have been, as bad as the US situation is, the rest of the world is even more scarier. Personally I disagree with that. I think that is thinking born over 30,40,50 years. If you look at the "balance sheet" of the US, plus the coming entitlements in the coming decades [Mar 26: Annual Spring Entitlement Warning Falls on Deaf Ears] , plus the bailout bonanza - we are heading for bankruptcy/default [Nov 12: CNBC Europe: USA May Lose its AAA Rating] or a printing spree of dollars that is going to make what is currently going on look like a tea party.
How the U.S. is "safe" versus an Australia, Canada, Switzerland is beyond me. Germany, despite a similar recession as the US in exports, does not have a country built on a housing bubble, credit bubble, and over consumption bubble. why is the US "safer" than Germany? (unfortunately there is no independent currency there anymore). But it takes a long time for people to break historic concepts and "the US is the safe haven" has been burnt into people's minds for decades. I think as we suffer the consequences of our "kick the can down the road" and "only deal with the fire on the couch we currently sit on" actions, this shall change in the coming decades.
But this is all theory. The dollar should be faltering, but everything is technical in nature and chart-driven. A trend stays a trend until it no longer does. At "some" point, these trends that have played out for months should reverse, the dollar should begin to weaken and gold strengthen. So that's the difference between "theory" and "seeing it really happen". What has been playing out the past few days has shown this reversal, and today key technical measures on the (long) dollar ETF were taken out. Can we trust it? Hard to tell, as nothing in this market seems trustworthy but this could be inning one of a long-term reversal.
This is the the bullish dollar ETF - Powershares DB US Dollar Bullish ETF (UUP). It broke its 50 day moving average today for the first time (other than a few days) since July 2008. One could say a beautiful double top (bearish) just over $27.
In theory the gold ETF - GLD should trade in inverse. We now have reached the same spot we reached two weeks ago, which is either going to form a double top (bearish) in gold (where we stand at this moment) or once we clear above that 200 day moving average, the potential beginning of a new bull market. I would say a move over $83 in GLD signals we could have the "change" here.
And the inverse of the bullish dollar ETF (of course) is now breaking out to the upside - Powershares DB US Dollar Bearish ETF (UDN) - you can quite obviously see the change in character.
If this is step one of a "real" move and not just a quant hedge fund headfake, two ways to play are the dollar bearish ETF and Double Long Gold ETN (DGP) - also sitting there with a double top (potentially). This is just double the gold chart above, so they will move in concert, but this one with double the velocity.
Disclosure: No positions but closely watching
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This article has 38 comments:
Okay, okay, sorry for being so harsh. TV will still be bad in 2028.
On Dec 11 07:32 PM curbs-in wrote:
> Buy canned food, ammunition, firearms and bottled water. They'll
> hold their value -- really.
"The dollar should be faltering" - relative to what? Please defend this statement. Germany is a red herring - one cannot very easily purchase marks these days, and the euro carries a lot of deadweight - along with a risk of not being there in 5 years. What currency would be safer, and why aren't you then invested in it? If gold's gains are dependent upon the dollar's losses, then simply skip the middle man and purchase whatever currency the dollar is losing against.
I do like gold, but your theory is bunk. You cannot argue for a thing simply by arguing against something else, and that poorly. Come up with some reasons to like gold - there are plenty - and then your article may contain more meat.
Also, the charts in this article are a mess... a 3-month would show a head-and-shoulders in the dollar rather than a double-top, and a 12-month or 2-year would better place it in context. The chart on gold is too narrow, and in any event I think the characterization of the last 3 weeks as a potential double-top is laughable considering the time frame and gold's recent history... and what about the "potential double-bottom" - make that actual - sitting immediately before it on your graph?
The US$ has simply been the least of all evils..and because of its quite undeserved status as THE trade and financial currency, everyone bailin ot of anything gets dollars. Boy is that going to change!
I sense that you are having an intuition about this. I'd trust it. (I got in at 75 about a week ago, and I've been having strong "this is it" feelings--i.e., this is the start of something big.)
I think the current up-move will be at least as long as the up-move from the double-bottom. (That was 13 points on your chart, from about 69 to about 82. This move started from a base of 75, so 13 points "should" take it 88--maybe a bit higher for a day or two, before it takes a breather.)
And that booshwah on entitlements and the bailout - cow manure. The bailouts are mostly in the form of loans that are collateralized by senior debt - what a deal; the government owns debt in a company that it makes sure can't fail. Entitlements that can be adjusted in value at any time, and paid for easily be just letting the population grow through immigration.
my instinct is that gold is due a little year end bounce for being so good.
On Dec 11 09:19 PM Roger Knights wrote:
> "this could be inning one of a long-term reversal."
>
> I sense that you are having an intuition about this. I'd trust it.
> (I got in at 75 about a week ago, and I've been having strong "this
> is it" feelings--i.e., this is the start of something big.)
>
> I think the current up-move will be at least as long as the up-move
> from the double-bottom. (That was 13 points on your chart, from about
> 69 to about 82. This move started from a base of 75, so 13 points
> "should" take it 88--maybe a bit higher for a day or two, before
> it takes a breather.)
Historically, go look at the price of ammo 20 years ago... and you would see it was a brilliant investment had someone bought a bunch to store and sell today - or if you think the price will go up higher - sell later on. Same goes for food prices, guns, water, etc, etc... The dollar is going down in value each decade and almost any real asset you can buy is worth more today than it was in the past - at least in dollar terms. The same can be said for gold.
On Dec 11 07:42 PM Jimmy Lathrop wrote:
> Curbs in - you forgot to mention digging a hole and pulling the earth
> in over you so that you can bury yourself alive. Make sure you have
> a breathing tube to the outside world, just give us a date in the
> future like, oh, 2028, and we'll shake the tube to let you know we're
> still out here and we'll fill you in on all of the great medical
> advances, technological innovations and great TV you missed hiding
> out in your bunker.
>
> Okay, okay, sorry for being so harsh. TV will still be bad in 2028.
>
On Dec 11 11:07 PM svosavvy wrote:
> actually ammo would be a tremendously bad investment. It cost more
> relatively in the past due to innovation kinda like investing in
> vcr tapes, just go to walmart it's a dime a dozen now. I get your
> gist though, just having a bit of fun kind of like Jimmy.
Absolutely right. A Mad Max collapse would have to occur for gold to reach the level goldbugs are screaming about. There is not a single country on the planet that is on the gold standard. Understand this people. Not a single country on the planet is on the gold standard and if things collapse then you'd want canned food and water. Police state provided.
Viewing gold as a portfolio asset is against economic law. Everything else is a portfolio asset; including the USD.
"There is not a single country on the planet that is on the gold standard."
That does not mean that a 'gold standard' is not in effect. So likewise all governments could vote to repeal the law of gravity and go off the 'gravity standard' but it would be fruitless.
www.runtogold.com/gold.../
"A Mad Max collapse would have to occur for gold to reach the level goldbugs are screaming about"
While a global 'Mad Max' Armageddon event is possible it is neither very probable nor a prerequisite to increasing the dollar gold price. The only real prerequisite is gold's velocity as a currency in ordinary daily transactions. Thus, one can be a 'gold bug' without the Mad Maxian undertones.
@Philly Jim: "The dollar needs to remain stable if the world economy is to stabilize." You think we can somehow stabilize the world economy by propping up the dollar? That's backwards thinking, and the reason fiat currencies are a scam!! -- they can only react to *actual* economic conditions.
Use some gold, not a guru magician,
Your gold stays the same,
It's the dollar that's lame
'Cause the FED splits it faster than fission.
A limerick should never be planned,
Spouting all sorts of theory,
Could be seen as quite dreary,
Unless humor is injected offhand.
On Dec 11 10:54 PM Robert Nabloid wrote:
> Lathrop, you wrongly treat curbs in like he's a nutcase. What if
> he was merely saying that buying canned food, ammunitions, firearms
> and water is a good store of money - a hedge against further price
> increases.
>
> Historically, go look at the price of ammo 20 years ago... and you
> would see it was a brilliant investment had someone bought a bunch
> to store and sell today - or if you think the price will go up higher
> - sell later on. Same goes for food prices, guns, water, etc, etc...
> The dollar is going down in value each decade and almost any real
> asset you can buy is worth more today than it was in the past - at
> least in dollar terms. The same can be said for gold.
>
> On Dec 11 07:42 PM Jimmy Lathrop wrote:
Don't you know that, you sender of rain?
We're on the same side
so why not abide?
Your limerick caused MB some pain.
As far as bullets go the only ones gaining value over the years are for hard to find old calibers. They increase in value like your antiques. The workhorse rounds like the .223, 7.62 nato, .30-06, .300 wm all are cheaper. The nato stuff is super cheap now because of supply glut. 12 gauge remmy sluggers are 2.25 for a box of 5, but, I prefer brenneke.
On Dec 12 09:13 PM Jimmy Lathrop wrote:
> Thanks for pointing out my wrongheaded thinking Robert. I will invest
> in shells that will not misfire after being in my closet for 20 years.
> I will also buy land to put huge containers of water, hoping it wont
> get contaminated or stolen. And nothing washes the taste of paranoia
> out of my mouth like a healthy serving of spam. Because historically
> speaking, 20 years ago, a telex machine was a great investment. 30
> years ago, the uncle in The Graduate was whispering about plastics.
> And 500 years they believed if you rubbed a lamp, a genie would come
> out. Keep rubbing. Harder. Come on, put some shoulder into it. <br/>
MB's been off topic it seems;
and so a Smart man has deemed.
To prevent a Depression,
MB failed to question
his use of sub-optimal means.
Thanks.
Proverbs 27:6
mb
we can NEVER repay the debt we already have and the holders of our worthless treasury notes are all afraid to cry wolf? guess what, the emperor has no clothes and the world is beginning to find out. the dollar must and will fall, more than anybody can guess right now. it is even in our own interest. read up on bernanke's 2002 speeches on deflation if you don't believe me...
"Take your time in a hurry"
the Great Wyatt Earp has said.
MB must learn that dear lesson
or else by his haste be mislead.
It really insults His Creator
to imply there is not enough time.
MB forgets in his passion
that He also creates all time.