U.S. Election Rejection of Obama is Bullish for U.S. Dollar, Gold Rally Defferred

By: Ned_W_Schmidt

Rejection may be hard for most politicians to accept, but might be good for the nation and the world. Obama Regime's mismanagement of U.S. economy was rejected on 2nd of November in the U.S. election. That rejection ushered in the greatest change in political power in U.S. since 1948. Thus far, Obama Regime's only positive legacy will be the greatest political rejection in 62 years. That development means Obama Regime's reign of terror on wealth and economic growth has ended. That is bullish news for the U.S. dollar.

Second rejection of Obama Regime occurred this past week at the meeting of the G-20. While few world leaders are enthusiastic about China's management of the Yuan, U.S. monetary policy is deemed a far greater evil. Federal Reserves's QE-1½, with rare exception, has been rejected by leaders of world's 20 most important economies. Who will back down, the Federal Reserve or the rest of the world?

Strike three, or if you prefer the red card, for the Obama Regime occurred on Friday when world turned to focusing on Chinese monetary policy. In short, when will China again tighten monetary policy? World now recognizes that monetary policy of China, the engine of global growth, is extremely important. In short, the Obama Regime and the FOMC are being "passed over" in terms of global economic power. This neutering of those two sources of economic mismanagement is bullish for the dollar, at least in the short-term.

In above chart of U.S. dollar several important developments need to be observed. U.S. dollar has been in an inverted parabolic curve created by the fears of massive mistakes on the part of the U.S. Federal Reserve. Dollar now seems to be walking out of that formation on the "positive" developments discussed above.

Further, we have highlighted the previous major low for the U.S. dollar. Note that it traded down to a low, rallied, and then fell to another low that was the end of that period of decline. From there, dollar rallied strongly. A similar pattern, though none are ever exactly the same, seems now to be developing. A rally of some significance seems the likely path of least resistance.

Parabolic formation in $Gold in above chart is mirror image of that inverted parabolic curve for U.S. dollar. They are not different patterns, nor is one due to the other. They are the same phenomenon simply viewed from different perspectives. And, we know several things about parabolic curves.

One, all parabolic curves terminate. None last indefinitely, or go on to outrageous price forecasts.

Two, all parabolic formations terminate in pain. None are resolved with only minor suffering.

Three, parabolic formations like to create margin calls. Margin calls are more powerful than all investment ideologies and fantasy price targets.

Four, the downside risk is greater than many expect.

Long-term case for Gold is not changed by this formation, just deferred in the short-term. What may change is the time frame for reaching longer term price targets. We had not expected our longer term price target for $Gold to be achievable until latter part of 2012. On Silver, the situation is somewhat different, and more difficult. Silver will experience a growing, and near unstoppable, abundance of supply over demand during the next two years that may keep prices low for some time.

By Ned W Schmidt CFA, CEBS

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS as part of a joyous mission to save investors from the financial abyss of paper assets. He is publisher of The Value View Gold Report, monthly, and Trading Thoughts, about weekly. To receive these reports, go to www.valueviewgoldreport.com

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

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