The Golden Truth: Is The Dollar Rolling Over Already?

Wednesday, November 17, 2010

Is The Dollar Rolling Over Already?

Gold and silver have spiked inexplicably this evening. I can't find any news that would have triggered the sudden, unusual early evening action. Typically the early evening action is low volumn and the manipulators like JPM tend to try and swat the metals lower until Bombay and Hong Kong open up. Then the physical accumulators take over. This is actually a tradeable pattern.

At any rate, given no news, I took a quick perusal of hourly and daily charts of the USDX. Here's the daily (the hourly looks bearish, but that's obviously of shorter term significance):

(click on chart to enlarge)

I am not willing to commit to calling a resumption of the downtrend. But I do think the message of the action in gold/silver tonight reflects the market's expectation of a possible rollover. I thought the Fed's QE2 monetization of $8.2 billion in 10-yr Treasuries - a staggering size for this duration - sent the unimistakable signal to the market that the Government is going to start having problems selling longer duration paper, especially with $104 billion in total Treasuries on deck to be issued next week.

I will commit to saying that I believe that we are at a point in the global systemic unravelling in which gold is likely to start "disconnecting" from its correlation to the US Dollar and begin to move a lot higher against anything fiat.

12 comments:

BillWednesday, 17 November, 2010
http://www.businessweek.com/news/2010-11-16/china-may-gradually-increase-gold-reserve-holdings-paper-says.html
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halWednesday, 17 November, 2010
Dave--I am thinking of Midas and Adrian $26 silver--

and Muni problems all around, Pension problems, the Sheila Bair comment Wednesday about how the fair value accounting would expose the banks and financial companies (how would GE buy 25k volt cars from GM), the inherent supply /demand aspects of precious metals for various reasons:

and wonder which of the issues in addition to the above will be the one to trigger the cascade.

I do not know if a $14 move in gold and 50 cent move in Silver means anything more than the volatility that's been discussed--but then again I am "playing" in a sandbox with a bunch of folks who know a heck of a lot more than I do.

From my limited perspective, there is no reason for the USD to stay at current levels except for the other currencies having bigger problems than we have, of most of the investment world reacting in the same manner as in past crisis, without regard to whats happening that is probably different.

Regardless of the reason, and the volatility, the mantra here is higher highs for PM and higher lows for PM--take some valium and march on.
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Dave in DenverWednesday, 17 November, 2010
I missed the Sheila Bair comment. Disingenuous coming from her.

Here's the deal with the action in the metals: historically for the past 9 years, whenever we had a semi-parabolic run in the metals and they are technically overbought and large specs are way long, the cartel engineers a massive sell-off that lasts several weeks. Like, we'll get a pattern of 13 out of 15 trading days would be red, some massively red.

They haven't been able to do that so far this time. Several of us feel that the correction is over. It would seem that the paper manipulators are losing the war to the physical demand. Yes, it will get a lot more volatile, but the volatility now seems skewed more toward the upside...
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AnonymousThursday, 18 November, 2010
Rally over?

It's just getting started Chico.
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Dave in DenverThursday, 18 November, 2010
Maybe. Who's to say for sure and I don't give a shit. Gold/silver will scream either way. I'm just posting an observation. The dollar bulls have been bullish since the dollar lost 90 last time around. How's that view looking? I will bet you any amount of 1 oz. gold eagles that the dollar sees 66 before it sees 90.
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Dave NarbyThursday, 18 November, 2010
I bet it sees 83 again before 66, myself. At this point, the only way to suppress PMs IMO is by squeezing the dollar. Could be wrong.
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Dave in DenverThursday, 18 November, 2010
Dave, you have to at least create a 50/50 upside/downside. My scenario actually gives the benefit to the party that takes the bull view, from a percentage standpoint.

Your scenario is this: I bet the NY Jets have a better chance of winning the Super Bowl than Buffalo.
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Dave NarbyThursday, 18 November, 2010
I understand, I just think there's more upside for the USD here near term, because that's the only way to suppress PMs. After that last ditch attempt, I expect PMs to Moonshot. I could be wrong, and they just keep marching from here, but that's my thinking.
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Dave in DenverThursday, 18 November, 2010
They don't manipulate the dollar to control gold. They just sell paper gold in droves. Right now they are getting their ass kicked by the physical buyers. See my post today.

The dollar is severely "oversold" by any measure. It can easily bounce. But take a look at late 2005. Same deal. The dollar staged a decent rally and gold went up along with it. Then the dollar rolled and gold went on to its peak in May '06.

The other "tool" that was used since the mid-60's was the disgorgement of gold by the Western Central Banks. Why do you think the ECB was selling 500 tonnes/year since the Wash Agreement and now they are selling nothing? Other than France, it is likely the EU CB's do not have any gold left to sell. You think the U.S. has 8100 tonnes? Anyone who does think that then I have nice 14'er in Colorado, Pikes Peak, which I can see from my window, that I have the title to and can offer real cheap...
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AnonymousThursday, 18 November, 2010
the answer is this:

the dollar index is irrelevant. it just doesn't know it yet.
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Dave in DenverThursday, 18 November, 2010
Anonymous: you hit the nail squarely on the head.
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AnonymousThursday, 18 November, 2010
Dave, love the jets/buffalo analogy, but the way I was interpreting Narby's scenario was more analogous to the statement that his comparison is like saying he thinks its likelier the Jets would win one of their next three games than buffalo winning the super bowl.

satya
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Why Gold?

Gold is the world's oldest currency. You exchange your fiat currency (dollars, euros, yen, yuan) into gold as an insurance policy against catastrophic Central Bank and Government policies which serve to destroy the value of fiat currencies and destroy democracy.

Gold can ONLY be considered an investment to the extent that it remains significantly and historically undervalued in relation to the fiat currencies against which its value is measured. Otherwise it remains the world's oldest currency and is completely free from the counterparty risk associated with currency by Government fiat (i.e. fiat currencies rely on a Government's "full faith and credit.")

Quote Of The Month Courtesy of "Jesse"

Unfortunately for Larry Summers, Ben Bernanke, and their friends at the BIS, they have not yet figured out how to print physical gold, silver, and other essential commodities, and the world is reaching the point where it might simply start ignoring the New York based markets with respect to essential commodities such as basic materials, oil, foodstuffs, and the like, as they become increasingly irrelevant, fraudulent, and Orwellian. And then where will the financial engineers be, except with no more excuses and no place to hide?

Here is the link to his entire commentary, well worth a read:

http://jessescrossroadscafe.blogspot.com/2010/07/gold-daily-chart-shock-and-awe-for.html

Great Quote From Jim Rogers On Govt CPI Reporting

JR: I mean, we have inflation now. If you go to the shop, whether it’s groceries, or education or insurance or health care, prices are going up for everything. The government lies about it in the US. Some countries lie, many countries don’t: Australia, China, India and Norway. Many countries don’t lie about it and acknowledge that we have inflation. Others lie about it, the UK and the US, but if you go shopping you know prices are up.

Q: Are you saying that the American Consumer Price Index (CPI) published by the US Bureau of Labor Statistics is a lie?

JR: In my opinion, yes, of course it is. Have you looked at it? They’ve changed their accounting several times in the past few decades. When housing was 20% to 25% of the CPI and housing was going up, they didn’t count it, saying rents weren’t going up, and then when home prices started going down, they counted it. It’s the same with many things. It’s staggering some of the tortuous reasoning that the BLS has used over the past 25 or 30 years. When the price of gasoline goes up, they say it’s not really going up because it’s better gasoline, better quality, therefore you’re getting more for your money. I mean, it’s endless, the stuff that they say and for some reason people sit there, although more and more people are catching on, and accept what the government says.

source: www.clusterstock.com

Quote of the Week

"The primary function of a Central Bank is to engage in the massive transfer of wealth from the middle class to the wealthy elite. The Federal Reserve was set up to do this with the blessing and support of Congress." - Dave in Denver

If you refuse to believe the above, please read "The Creature From Jekyll Island: A Second Look at the Federal Reserve" by G. Edward Griffin and then explain to me why the Senate voted down the Vitter Amendment and Congress refuses to pass a law requiring a full audit of the Fed, even though the Fed is using taxpayer-backed money to bailout Wall Street and Europe.