Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is the Rise in the Gold Price Just a Fall in the Dollar?

Commodities / Gold and Silver 2010 Nov 05, 2010 - 03:27 PM GMT

By: Julian_DW_Phillips

Commodities

As we write, the gold price is about to assault the $1,400 level having been $1,332 on Wednesday of this week, a day ahead of the Fed announcement. Against the pound sterling, the yen the Swiss franc and most other currencies the dollar has weakened too. In the days ahead of that announcement the dollar had been wavering between $1.38 and $1.40 against the euro. After the announcement the U.S. dollar fell quickly down to $1.42 against the euro. But then the dollar recovered and is sitting at $1.41. Recently gold has again moved in the opposite direction to the dollar, until it ran up in the euro vigorously, so has this now changed again? Can there be more to the rise in gold than just the fall in the dollar? We believe so, because far more than QE 2 happened this week.


Did the mid-term elections affect the price of gold?

In the run-up to and after the announcements of the results of the U.S. mid-term elections the gold price barely moved. On the surface we can therefore conclude that the mid-term U.S. elections did not affect the gold price. But whether the Republicans or the Democrats won is not an issue for the gold market. What is an issue for precious metals is, can the U.S. government govern in the monetary area sufficiently to invigorate the U.S. economy and should they wish to do so, strengthen the U.S. dollar?

We found the result pointed to an emasculation of the government's power on the monetary front. Far too much of a burden has fallen on the shoulders of the Federal Reserve, an institution with only limited powers to resuscitate the U.S. economy. Government should shoulder that role, supported in this by the Fed. Government does not appear to now have the capacity to resolve the economic problems of the U.S. This tells us that the enormous steps needed to be taken to strengthen the U.S. dollar are not going to be taken, so a fall in the U.S. dollar is widely expected. The difference for the dollar now is that its fall can be precipitous and not simply a repeat of the fall in the last two years. Control over the dollar's value for the next two years appears to have slipped from the grasp of the U.S. monetary authorities. This is extremely positive for the gold price.

Did the Fed's announcement of Q.E. 2 affect the price of gold?

Ahead of the announcement a 'bear raid' on gold was mounted that had the gold price drop from $1,358 down to $1,332 in a steep dive that shook the weak holders and triggered more than a few 'stop loss' positions. Ordinarily, this would have been enough to deter investors, but it happened when the market was seeing thin volumes of trade, hence the size of the fall. On the announcement these bears received a very sharp silver coated, golden horn in the sensitive parts and rose like a space shuttle breaking up through the fifties and sixties and on through resistance at $1,370. Right now we are tapping $1,400.

Undoubtedly the activity of buyers looking for physical gold from most gold markets in the world was the primary driver. But add to this the scramble of short covering that is now going on. The short covering comes not only from those who went short ahead of the announcement but from longer-term shorts, realizing that the breakout to new levels is well founded on fundamental factors. The announcement from the Fed established those fundamentals. However, a greater and greater proportion of gold investment buying globally is due to a growing fear of the global currency system itself!

What are the Ramifications of the Fed's announcement?

The entire financial world had been waiting for weeks for the Fed to make this announcement. It was important because it directly affects the value of the dollar inside and outside the U.S. While the U.S. does not intend to cause a devaluation that will enhance the international competitiveness of the U.S., that is what is happening. That is how the rest of the world will see it. They will take action in their own interests to protect themselves. They have to or see themselves suffer as the U.S. has been doing so for some time now. This will have three primary effects on the global economy: -

  1. The U.S. will lose the cooperation they had hoped for with China and other nations who they asked to let their currencies rise but who will now suffer from a lower dollar, such as China. Global monetary cooperation, sorely needed now, will decay. Currency crises in different nations will be inevitable as they each strive to protect their own interests.
  2. Foreign investment capital channeled into the U.S. and badly needed by them, will accelerate its diversification from the dollar. This will accelerate the fall of the dollar and see capital exit the U.S. To the extent this happens it will act as a counter to QE 2.
  3. It will undermine the dollar's global hegemony, which in itself will create considerably more uncertainty as to exchange rates and values.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2009 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2022 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