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.



  2. 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.

  3. 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...

  4. Rally over?

    It's just getting started Chico.

  5. 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.

  6. 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.

  7. 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.

  8. 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.

  9. 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...

  10. the answer is this:

    the dollar index is irrelevant. it just doesn't know it yet.

  11. Anonymous: you hit the nail squarely on the head.

  12. 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.