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Ardent Listener
Administrator
USA
4841 Posts |
 Posted - 12/20/2009 : 19:46:41
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See link to view charts.
U.S. Dollar Breakout Means Gold Has a Lot Further to Fall
Commodities / Gold and Silver 2010
Dec 20, 2009 - 05:18 PM
By: Clive_Maund
Gold behaved as predicted in last weekend’s update - it rallied into the middle of last week before plunging on Thursday and then ended the week with a modest upturn. Thursday’s plunge involved a sharp break below our important parabolic uptrend channel, and although the break was not by a decisive margin and gold rallied Friday, this sharp drop has bearish implications.
We can see this latest action on the 1-year chart on which we can also see that although gold has broken down from the parabolic uptrend, it has yet to breach the “last ditch” support of the lower boundary of the parallel uptrend channel, which is shown as a dotted line. Until that happens a significant bounce is possible particularly as it is now quite deeply oversold on a short-term basis, as is clear from its RSI indicator and stochastics and in the vicinity of its rising 50-day moving average.
In the situation of a continuing intermediate uptrend we are now at a classic “buy spot”, and even if, as we believe, the intermediate uptrend has now reversed, it would be quite normal for a bounce to occur here although in this case it will turn out to be a trap. If the lower boundary of the parallel uptrend channel shown is decisively breached it will be a signal to close out all long positions, as such a break will call for a initial drop to the strong support at the top of the 20-month trading range, which starts to come in at about $1030.
Some observers are comparing the current reaction to the mid-trend correction that occurred half way through the powerful uptrend of late 2007 and early 2008, that we can see on our 3-year chart, which took the form of a continuation Triangle, but there is an important difference, which is that the steep advance preceding the Triangle in 2007 did not blow out above the top of its channel, as occurred on the recent near vertical advance. The recent event was a blowoff top which normally marks the end of an advance.
Many “bugs” cling to the idea that gold is set to rocket because the cartel controlling the gold price is about to be smashed, and are deluding themselves that the recent powerful breakout by the dollar is just some blip or aberration.
That’s not the way it looks to us - this dollar breakout, which we predicted well in advance as demonstrated by the chart from the 29th November update which appears below, looks like the real deal, and the dynamics behind it are believed to be as follows…
Big overseas Treasury holders such China and Japan are believed to have “strong-armed” the US in the recent past behind the scenes and essentially said “You either quit undermining your currency and defrauding us with your zero interest rate policy or we are going to dump them, big time, and collapse the Treasury market.” The Treasury market is the “aorta” of the US, which involves swapping essentially worthless paper for the goods and services of countries that are dumb enough to buy them, thus allowing the US to live way beyond its means running continuous massive deficits. It is viewed by the administration as infinitely more important than the stockmarket, which is small in comparison. It is thus clear that if it is necessary to sacrifice the stockmarket by raising interest rates to rescue the Treasury market, then that is what’s going to happen. The rising Treasury yield curve, which has recently become very steep is indicating that rate rises are in the pipeline.
Smart Money has already got wind of this and has been stampeding to close out US dollar carry trade positions, hence the breakout and sharp rise in the dollar, and the plunge in gold. The ordinary Joe sat rustling his newspaper hasn’t got the faintest idea of what is going on as usual. Given the magnitude of the US dollar carry trade positions that have built up this year on the back of unprecedented negative real interest rates in the US it should be obvious that a intensifying stampede out of them could easily drive a massive dollar spike, perhaps considerably larger than the one we saw last year, especially given the precarious condition of many countries in the European Union. In this situation commodities and the stockmarket will be trashed.
Those of you who may be deluding yourselves that the dollar’s recent rise is just a countertrend blip might like to reflect on this article in The Wall St Journal titled Net Assets in Bullish US Dollar ETF Go Vertical in December . The point to appreciate here is that this asset buildup is not occurring at the end of a move, but rather at the start of it, and is thus a proxy for very high volume on the dollar breakout, indicating both that it is genuine and that the dollar is destined to go MUCH higher.
Finally, the idea that Big Money is going to be defeated by the “little guy” led into battle by his favorite cheerleaders and gurus is naïve and fanciful. We never try to beat big money because they have access to the best information, the information that really matters and they pull the levers and call the shots - instead we aim to “ride on their coattails”. Take a look at the latest COT chart above on which we can see that the Commercials, who are by the way very patient, are still running big short positions in gold. This chart implies that gold could have a long way further to fall.
By Clive Maund
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Think positive. |
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fb101
Administrator
USA
2856 Posts |
Posted - 12/20/2009 : 21:35:28
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quote:
It is thus clear that if it is necessary to sacrifice the stockmarket by raising interest rates to rescue the Treasury market, then that is what’s going to happen.
Half a truth. it isn't just wall street that will be screaming this time if interest rates are raised, it will be main street, and they will do their shouting at the polls. They will be shouting about the 25% unemployment rate. This is the fear of the current set of TPTB (whatever current is).
My own estimate about this whole current decline is that the price still has to be controlled by those who wish to hoard, else they get much less gold for their dollars bringing about that which they are trying to avoid. I don't figure on seeing gold under 1000 ever again in my lifetime, but I think for now, the appreciation is limited. |
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AGgressive Metal
Administrator
USA
1937 Posts |
Posted - 12/20/2009 : 22:02:54
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| I think that even with higher rates, copper and silver can still perform well due to demand from emerging economies. What say you Ardent? Or is this article just food for thought? |
And he that hath lyberte ought to kepe hit wel / For nothyng is better than lyberte / For lyberte shold not be wel sold for alle the gold and syluer of all the world.
-Caxton's edition of Aesop's Fables, 1484 |
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Degeneerit
Penny Sorter Member
43 Posts |
Posted - 12/20/2009 : 22:20:41
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| Dollar is rising relative to other currencies meaning its value inst rising in real terms as much as it appears because the euro is tanking. I dont see gold breaking through support at 1100. This is a purely technical short squeeze after a huge falling wedge formaiton in the /dx. Once the weak shorts are out and I suspect soon, then I suspect the dollar to start falling again. Just look at the violent moves to the upside fallowed by a slow sell off. |
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Ardent Listener
Administrator
USA
4841 Posts |
Posted - 12/21/2009 : 19:21:20
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quote:
Originally posted by AGgressive Metal
I think that even with higher rates, copper and silver can still perform well due to demand from emerging economies. What say you Ardent? Or is this article just food for thought?
Both. I like to throw out articles such as this to help keep us sharp and on our toes. Like a new member said on over at Goldforum; "A bunch of gold bugs slapping each other on the backs and telling each other how smart they are and how dumb everyone else is isn't a discussion." Maybe that was said a little ruff around the edges, but true all the same. We need to challenge what we believe and continue to see if it is based on truth.
Higher interest rates and higher metal prices can exists together. Back in the 70s we had 'stagflation'. In a nutshell, stagflation was a recession with high interest rates and high inflation. Sounds sweet doesn't it...  But it lead to much higher PM prices too.
Higher interest rates are a sign or symptom of inflation, not its cure. |
Realcent.forumco.com disclosure. Please read.
All posts either by the members, moderators, and the administration of http://realcent.forumco.com are for your edification and amusement only. It is not the intent of realcent.forumco.com or its host to provide investment, medical, matrimonial, legal, security or tax advice and nothing posted here should be considered to be so. All rights reserved.
Think positive. |
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U.S. Dollar Breakout Means Gold Has a Lot Further
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