Is the Gold - Dollar Relationship Breaking Down? 15 comments
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In our Aug. 20 Seeking Alpha article–Pessimistic Sentiment Gives a Buy Signal for Gold–we suggested that gold sentiment had reached overly pessimistic levels and a rally was likely. Since then bullion has continued to surprise and strengthen, and today Comex gold for September delivery gained $19.20 a troy ounce, or 1.97 percent, to end at $995.80, its highest close since Feb. 20. Gold has jumped by 4.6 percent over the last three trading sessions and is now less than 1 percent below its exchange record close of $1003.20 on March 18, 2008.
Sentiment has yet to reach the neutral band (see bottom chart below), indicating to us that there is enough skepticism for further upside. The more interesting question is are we seeing a break down in the gold-U.S. dollar relationship (see top chart below)? Since the market low in March, both gold and the U.S. dollar have been range bound, which on balance has confused and frustrated gold bulls. Ned Davis Research pointed out this week that this fading relationship could be a blessing in disguise, if we see a dollar rally from its current position of extreme pessimisim.
We are entering a period where gold historically weakens from "Recession End" to "Earnings Trough." Some U.S. dollar bulls are being as bold as to forecast that the current period is similar to 1996, when gold looked poised to break through the $400 barrier on the back of an expected weak dollar. Despite all this, we remain bullish on gold long term, not as an inflation hedge, but as a "Safe Haven" hedge.
Disclosure: No current positions, but GLD is held in our model portfolio.
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As for the dollar remaining the world currency--no. Steps are already in full gear to toss dollar supremacy.
Yes, it still is, but not so sure about the "always will be" part of your post. That status has never been more threatened than it is now.
On Sep 04 08:02 AM BORN1929 wrote:
> $ is still the reserve currency and it always be, you cant buy bread
> with gold bars nor you can make trade, barter gold for wheat or Mercedes,
> nobody is gonna do it.
On Sep 04 10:50 AM GMiki1 wrote:
> Sometimes gold runs opposite to the dollar, but sometimes with it.
> So to say there's a gold-dollar relationshop or a gold-oil relationship
> isn't exactly the case.
>
> As for the dollar remaining the world currency--no. Steps are already
> in full gear to toss dollar supremacy.
Thank you so much for not being part of America. Keep putting your bets on the U.S. dollar, I'm sure you'll never have enough to visit us either.
The relationship of the U.S. dollar to physical gold is simple enough to understand. The gold SPOT market is in U.S. dollar so its price is in U.S. dollars. When the dollar rises vis other currencies it makes the metal more expensive in those currencies. The opposite applies equally. As for the U.S. dollar as Reserve Currency, I think it is safe enough. A reserve currency is just a trade tool, a medium of exchange. As a forex investment the U.S. dollar is another matter entirely. Those long and short the dollar have different volatility worries than those managing gazillions in foreign reserves. Despite any blustering by the latter. As an example, note the Chinese purchase of U.S.$ 50 billion in IMF SDRs, which is about 32 billion in SDRs. That is a drop in the ocean in the currency world, but worthy of note is that SDRs are interest-bearing IMF assets based on a basket of four international currencies: the Japanese yen, the euro, the British pound and (drum roll please) the U.S. dollar. It is a means of diversification while at the same time supporting the IMF's need for about 10 times that number to be used to help troubled economies. For the Chinese seeking diversification, the SDRs represent a relatively stable and secure investment not an abandonment of the U.S. dollar. Also worthy of note is that the Chinese government is recommending its citizens buy gold. Now why would that be? I think we all know.
On Sep 04 01:54 PM Wayne A. Corbitt wrote:
> Gold is really coming to the forefront as a safe haven play. The
> fact that China invested $50 billion in debt issued by the world's
> biggest Ponzi scheme says that the dollar's days as a reserve currency
> and safe haven are numbered. No fiat currency will be able to match
> gold as a safe haven when the liquidity spigots are turned off.
What the traders are watching now is teh volume to see if there is enough small contract interest to warrant higher prices. If there is enough then prices will break out- if not then this move will level out. There is no reason why $1,500 spot price isn't tennable if it breaks out. If it can't get out of this range ($940ish to $1000) somebody is going to lean on it.
i've always felt there was a reason the U.S. has the largest hoard of gold in the world....
www.tradingstocks.net/...
When existing debt deflates, since it is denominated in USD, it will propel the value of USD compared to other things. After FED prints money like crazy and inflates the money supply ten fold, then yes we can see gold at 10,000. But keep in mind, with regard to USD value to other currencies, their values really depend on which one is delfating faster. The faster it deflates (as it is in Europe now) the more valuable it gets.
On Sep 04 02:00 PM Dave Wrixon wrote:
> The Dollar "status" as a Safe Haven has been total bollocks for several
> years. It has only been a lack of objectivity by Americans who until
> now have dominated global markets that it survived the first leg
> of the crisis. The second leg is about to unfold and the Dollar is
> about to get buried.
Considering how "honest" the government has been with the people, I highly doubt the claims coming out of the Fed about the actual amount of gold held. Why do they shy away from an audit? Why do they continually turn down requests for information through the Freedom of Information Act? What are they afraid of? Why be so secretive about the amount of gold held? This all points to something to hide. Something so 'rotten' that if made public would cause government to possibly fall.
So, as far as the claim of having the worlds largest gold reserve - I wouldn't bet on it!
On Sep 04 05:23 PM adan wrote:
> nothing in stone that says the dollar can't re-attach (unofficially)
> back to gold, even if not today, but someday...
>
> i've always felt there was a reason the U.S. has the largest hoard
> of gold in the world....
Lion Mines – 1975 price $.07/share; 1980 price $380/share.
Bankeno -- 1975 price $1.25/share; 1980 price $430/share.
Wharf Resources -- 1975 price $.40/share; 1980 price $560/share.
Steep Rock -- 1975 price $.93/share; 1980 price $440/share.
Mineral Resources -- 1975 price $.60/share; 1980 price $415/share.
Azure Resources --1975 price $.05share;/ 1980 price $109/share.
The Night-Cycles (Dark Ages) I write about -- re-appearing every 36 years in American History -- are times when gold and silver shines, especially in the last quarter of each Dark Age. I.e., 2010-2019. 1974-1983. 1939-1947. 1902-1911. 1866-1875. 1830-1839. 1794 -1803.
If you have access to an historical chart of gold prices, I'd love to work with one. I know about many of these periods -- but not all the way back.
seekingalpha.com/insta...