Saturday, April 10, 2010

Something is up with Gold

Now if there is one thing we all know about gold – it is the dollar / gold rule. We are told by analysts that gold is the perfect hedge against a declining U.S. dollar. So if the dollar is weak, gold is strong and if the dollar is strong, gold is weak. In other words the two have an inverse relationship. The problem with the gold complex so far this year has been the persistent strength of the dollar due to the Euro problems. Since early December 2009 the US dollar index has run up from 74.27 to over 82 for a pop of over 10 per cent on the index. This in turn had gold reverse from a peak in December 2009 to post a 14-week low in early February 2010.

A look at a weekly chart of gold and the U.S. dollar tells me “something is up with gold” because ever since the February low – gold has rallied along with the dollar. When I examine a weekly gold vs. U.S. dollar chart I see that gold is returning the relative out perform in the face of a rising U.S. dollar. I can also see an elevated base and a bullish large inverse head & shoulder pattern.

One has to wonder if gold can rise against a strong U.S. dollar what would happen should the dollar turn lower?


Piazzi said...

one wonders what really constitutes dollar turning lower, its forex rate against some other currency or its intrinsically diluting nature?

it's all in the head and the head of the market seems to have it perceived that Benny is destroying the dollar to inflate some deflating assets

right or wrong, it's all in the head

the head of the market seems to also have perceived that gold is a hedge against paper, more than just inflation, or expansion of money and/or credit, but paper, all paper, regardless of the issuer of the paper.

It does not matter if paper problem is shifted from private purse to public purse, it's still paper problem.

right or wrong, it's all in the head -- until it changes is mind

chrispycrunch said...

Something has to give, eventually, as the correlation has broken down. Which trend do you favor? (Rising gold or rising dollar?)

Maybe it's the greek bailout that is giving temporary strength to the USD.

AlphaDow said...

Hi Bill - glad you are still using Supercharts! Like an old pair of slippers it is tough to give up. I also noticed the Google ads are still appearing (1000% on penny stock!) -- any word on when those will disappear as promised? said...

Hi AlphaDow

I am also using MetaStock but it is a nightmare - sorry about the dumb ads I am trying to clean up. Maybe I should do a Don Vialoux and push books (free of conflicts of course)

Bill Carrigan