Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
GOLD HAS LOTS OF POTENTIAL DOWNSIDE - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The War Over the U.S. Dollar Versus Gold

Currencies / US Dollar Oct 26, 2009 - 09:12 AM GMT

By: Clif_Droke

Currencies

Best Financial Markets Analysis ArticleA fierce war of words has erupted in recent weeks between the two major camps in monetary circles.  The first camp – the gold bulls/dollar bears – have been loudly voicing their twin belief that the gold price is poised to skyrocket while the dollar price is perched for a collapse.  The other side – the gold bears/dollar bulls – are making the counter claim the gold price is setting up for a crash. 


Both sides have spared no expense in trying to convince the investing public of the merits of their respective arguments.  In just the past couple of weeks I’ve received in the mail two elaborate promotional campaigns for financial advisory services.  One of those packages contained on the outside envelope  following warning: “ALERT: Dollar Crash Looms!  Your Last Chance to Evacuate the Greenback Before the Stampede Begins.”  The other package contained the following words on the envelope: “Shocking report reveals why GOLD is about to CRASH, not soar.  Savvy traders are about to make a fortune SELLING gold to millions of panicking investors.” 

Of these two promotionals, I received in the span of two weeks two copies of the mailing alerting of the dollar crash.  I can only surmise that this particular mailing “pulled” very well for the publisher and probably for good reason: the public fears a dollar collapse much more than a gold crash.  According to one sentiment poll mentioned on CNBC recently, nearly 98 percent of all respondents were bearish on the U.S. dollar.  Assuming this figure is anywhere near accurate, this has to be an all-time record for bearish sentiment on the greenback.

Before we examine the claim of the “coming gold crash,” let’s examine the dollar crash scenario.  Is it possible that the “powers that be” would allow the mighty greenback to cascade to new depths, eroding purchasing power for millions of Americans in the process?  After all, no government has ever outlived its currency.  Why would the federal government allow the dollar’s value to be sabotaged at the expense of its own survival?  The possibility of an outright dollar implosion must therefore be seen as a slender one.

There is another train of thought espoused by some that a slow, steady decline of the dollar’s exchange value, rather than being a catastrophic event, is actually good for the U.S.  David Jennett, editor of the Investment Letter, is an advocate of this theory.  He writes, “Far from being a sign that things are heading for a disastrous crash, the weaker dollar is a sign that American manufacturers will once again be given a fair chance to prove to the world that they are a low cost, high quality producer.”

Echoing this sentiment, Adrian Van Eck writes in the October issue of his Money Forecast Letter, ““There is, I admit, a measure of national pride when the dollar is treated as the king of the business and financial world.  There was a dollar rally during the [2008] crash, but now you can see the dollar is falling again.  That allows U.S.-based producers to win orders around the globe based on quality and not a message of cheap prices.” 

Even within the gold community there are some who don’t buy into the “dollar crash now!” scenario.  In an interview I conducted recently with James Hesketh, President and CEO of Atna Resources, a Colorado-based gold production and exploration company, Hesketh said, “The gold price is pushing the limits to new highs on the back of a weakening U.S. dollar.  At some point here the Treasury and the Federal Reserve will have to step in and support the dollar.  They’re basically throwing the dollar under the bus, so to speak.  Our continued deficits will continue to weaken the dollar.  Effectively what they’re doing is devaluing the savings of every person in this country.  And that is not something that cannot continue to go on indefinitely, so they will have to take moves to both tighten the belt and support the dollar.  And that will stop the advance of gold when that happens.”  He adds, however, that there “doesn’t appear at this point in time that there’s any political will to make those moves.”  Hesketh foresees “if not a continued strengthening then a stabilization [of the gold price’ at these levels.”

From a short-term technical standpoint we can see in the daily charts of both the dollar index and the gold futures price a potential juncture in the making.  The dollar index is testing the lower boundary of a downtrend channel as shown below.  The dollar is hugging the lower channel boundary and threatening to break under it.  If this happens, though, it will create a “channel buster” which in turn will set up a potentially sharp rally.  The previous two breaks below the lower channel boundary in August and September (circled) produced just such a snap-back, albeit a temporary one.  A third “channel buster” below the downtrend channel would probably create an even bigger snap-back, especially given the overcrowded nature of the dollar bear related trades. 

The gold price, on the other hand, is testing the extreme upper limit of an accelerating uptrend channel that has been in force since July.  The attempt of the gold price to break out above the upper channel boundary is an upside “channel buster.”  These patterns often result in an overextended price and tend to create at least a temporary exhaustion of the uptrend, rendering the price vulnerable to a correction.  Gold hasn’t had a worthwhile correction in some time, so any further attempt at rallying above the trend channel upper boundary would provide the pretext for a correction.

Turning aside from the dollar, another area in which there seems to be a consensus concerns the state of the economy.  Apprehension over the state of the financial markets have clearly spilled over into the economic outlook.  But are these fears founded?  In an earlier commentary we looked at the New Economy Index (NEI), which provided some hope for a positive retail sales outlook for the all-important months of November and December.  In spite of the internal weakness in some area of the market, the NEI actually strengthened this week as one of the components of this index, Amazon.com, exploded to a new recovery high.  In doing so it pushed the weekly NEI reading to its highest level for the year.  As previously discussed, the NEI directional trend tends to lead retail economic performance by 2-4 months.  A stronger than expected retail sales for this holiday season is therefore anticipated.  The most salient implication of this year’s stock market recovery is the potential for economic recovery, intermediate-term.  Lest we forget the old bromide: the stock market leads economic performance by 6-9 months on average.  I don’t expect this time to be the exception to this rule.

At a bookstore last week I saw someone I haven’t seen in years: Alfred E. Neuman!  I couldn’t resist buying the latest issue of MAD magazine because of the cover.  It shows Alfred clothed in rags and holding a cardboard sign that reads, “Will Worry For Food.” 

This magazine cover perfectly encapsulates the widespread fear over the economy and is an indicator all on its own.  As someone once said, when a financial or economic trend finds its way into the comics, the trend has just about played itself out.


By Clif Droke
www.clifdroke.com

Clif Droke is the editor of the daily Gold & Silver Stock Report. Published daily since 2002, the report provides forecasts and analysis of the leading gold, silver, uranium and energy stocks from a short-term technical standpoint. He is also the author of numerous books, including 'How to Read Chart Patterns for Greater Profits.' For more information visit www.clifdroke.com

Clif Droke Archive

© 2005-2019 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