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

U.S. Dollar's Rally From the End of Inverted Parabolic Formation is Bearish for Gold and Silver

Currencies / US Dollar Nov 30, 2010 - 01:46 PM GMT

By: Ned_W_Schmidt

Currencies

Best Financial Markets Analysis ArticleReally need to start drinking more coffee, perhaps. Must have fallen asleep and missed the demise of the U.S. dollar. For when we looked this morning, it was still there trading away. Something must have happened while we were nodding off.


And then, must to our surprise, as we leaped from the bed and threw open the shutter, we discovered, that no, not the dollar, but the Euro was soon to vaporize. Abundant stories on the net clearly explained that not only was the Euro's disappearance imminent, but was also a necessity. Somehow destroying the currency representing one of the largest spheres of economic activity would help everyone involved. No wonder Keynesianism has been such an abject failure. They predict nothing that makes sense, and that which they do predict does not happen.

Schmidt Median U.S. Dollar Index

As the above chart portrays, rather than going to zero, the U.S. dollar has exited the inverted parabolic curve in which it had been trading. Exiting that formation the U.S. staged a nice healthy rally, as should have been expected.

Now, as the oscillator in the chart indicates, the U.S. dollar is over bought. It will need to correct that pattern, perhaps on the reality that no one is seriously pursuing Korean War II. Whatever the reasons might be, and we do propose two, the dollar is no longer in a short-term bear formation. That reality is being completely ignored by the precious metal markets.

Why might the U.S. dollar have ended the inverted parabolic formation?

First major reason likely relates to the U.S. election in early November. A structural break in the political continuum, much like the 1932 election, appears to have occurred. The Obama Regime's reign of financial terror has been ended by the voters. It will still do serious damage to the U.S. economy, but not to extent that would have been the case without the voter revolt. Frivolous gestures such as freezing federal wages to save a paltry $2 billion are not what U.S. voters had in mind. Fortunately, as the Obama Regime continues to ignore the voters, the likelihood of a one term presidency grows. That is surely bullish for the dollar.

Second, all, except intellectually inbred Keynesian economists, agree that the Federal Reserve's program of quantitative easing was and is an incredibly dumb idea. However, QE-1½, now being implemented, is the less dumb possibility. The current program is far less severe than the original idea of injecting a trillion dollars into the U.S. banking system. In short, the Federal Reserve could have done something far dumber, and that is good for the dollar.

In short, the big negatives that had pushed down the dollar are really not as negative as originally thought.

US$ Gold: Monthly Average

One global currency has not acknowledged the shift in currency thinking. $Gold, as portrayed in the above chart, has yet to break down out of the parabolic rise in which it has been trading. While the short-term picture shows some faltering, the consequences of this parabolic rise are like a sword hanging over our neck. So far so good, but the down stroke is yet to come. We have written considerably on the ramifications of a parabolic formation, and so will not do so again here.

Chart below moves us from the longer term view to the short-term battle in the $Gold market. As drawn in the chart, a head & shoulders pattern might be developing. Good news with this is that many of these formations fail to fully develop. However, the neck line is ~US$1,320, and move through that level could cause short-term traders to shed positions.

That all said, all need to recognize that what is happening in Gold and Silver as we write has noting to do with currencies, Korea, or any fundamentals. It is a full scale speculative trading environment. Buying in such an environment is the equivalent of hand feeding an alligator.

US $Gold & Intermediate Oscillator

Given the above conditions, Investors should probably defer buying $Gold, and especially $Silver, until at least one of the following occurs.

One, the year-to-year percentage change for $Gold becomes negative.

Two, $Gold trades below US$1,000.

Three, we read of speculative hedge funds, which have helped to inflate the precious metals' bubbles, liquidating some positions.

While the long-term role of Gold as appropriate for inclusion in all portfolios has been reestablished in the past decade, short-term considerations should influence our buying. Therefore, with the second derivative on $Gold now negative, the short-term risk is far greater than the potential reward. Second derivatives are far more powerful than ideologies or fantasies of manipulation.

And for those playing in Silver, remember that playing is most apt description of current activity in Silver market. Keep in mind that a limit exists on the amount of capital losses that can be taken each year against ordinary income. Further, realize Silver is in a full-blown bubble/mania. Quite frankly, no reason exists for Silver to be trading as it is other than some mythical and delusional calculations that have been spread across the net. And do remember, micro economic environment for Silver has not been as favorable for Silver production as it is today in more than a "100 years."

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

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Rick
30 Nov 10, 19:15
Inverted Parabolic Formation For Gold & Silver Begins

Yes, this very well could be the beginning of a parabolic formation for the U.S. dollar, but unfortunately the beginning of an inverted parabolic formation for gold and silver.

The U.S. dollar will still go through a sizeable devaluation; that much is certain. No matter what the gold and silver bugs' opinion on the U.S. dollar may be, other currencies will fare far worse after this downturn is over.

That's exactly why I have been recommending the purchase of inflation-protected U.S. Treasury securities such as Series I Savings Bonds and TIPS.


Johnny
02 Dec 10, 23:26
Excellent Post

Ned, thank you for being a voice of sanity.

A few things scare me with metals, which not many people are talking about. 1. The republican house may cut off the spigot. 2. The hawkish Fed governors get control next year

Gold is speculative, but Silver is even more speculative, I don't think many new to this game realize how easily silver could lose half its value...


Post Comment

Only logged in users are allowed to post comments. Register/ Log in