Trader Scott
There is a post here about the relationship between gold and the US$, which might be good to read before going on. I have repeated that gold and the $ would begin to sync up early in 2017. And not because of how great the $ is, but because of all of the problems in Europe. We in the US have monstrous problems, and those are coming (and here now) in a big way for us to deal with. But Europe is up first, with elections and European disintegration. Yet worst of all for Europe are the problems caused by the pompous idiot Mario Draghi, with his insane negative interest rates. That guy has destroyed the European banking system. And that then is very bullish for gold. And the US$ (for now).
We hear constantly about all of the relationships between markets which supposedly exist. And the problem with these “theories” is they work some of the time, maybe most of the time, but they break down at the most important times. Meaning they break down at the big turning points (potential entry points) or they breakdown when some of the most explosive moves are about to occur. In other words, they work until they don’t, and that is a dangerous way to approach markets. I am fully aware of the general relationship between the $ and gold. It has kept me from making an ass out of myself like so many of the goldbug gurus, who claim every year gold will end the year at $2000. (But to be fair, most of the economic theories about the stock and bond markets are just as useless.) There is some magical belief, by way too many, in the theory which claims the price of gold is a mirror image of the $. And most gold permabulls believe the $ must crash for gold to soar. So since gold is always about to soar, then the US$ must be about to crash.
It’s shocking the lack of simple research (yes time-consuming) which goes into the “work” of so many gurus, but just viewing a few charts of gold and the $ should be enough to change some minds. It would be helpful to view these charts side by side. The $ chart and the gold chart over the last 20 years shows several instance when the $ bad/therefore gold good relationship (and visa versa) fell apart (please ignore the squiggly lines for now). The brutal 19 year and 6 month bear market in gold ended in 1999. But as you can see from the annotated charts, the $ ran from under 100 to 121 and yet gold was just biding it’s time, albeit in a volatile manner. Then when the $ did top in July 2001, gold was well off its 1999 lows. In other words, at this major secular turning point, those believing in the magical relationship would have been too scared/rigid/confused to buy gold into possibly its’ greatest entry point ever. So then we see the huge bear market in the $ until the bottom in March 2008. This then allowed the shackles to come off of the gold price as it eventually quadrupled. And here the relationship came back into force, as gold (for other reasons also at that volatile time) had a significant correction in the bull market. So then the $ bottomed in March 2008. But when gold bottomed in October, it more than tripled as the $ just traded sideways, but not down. Then we get to the big top in gold on September 6, 2011, and we can see the $ never went lower this whole time. Can you see where this discussion is going? And if you continue thru the chart you can continue to see more divergences. So my continued posting about this topic about market relationships is about how they work until they don’t, so the main focus should instead be on the great entry point into the individual markets themselves. But at times, we should understand we need to temper our expectations about how much of a move we can expect once we’re in. For instance, I have expected to see the topping process in the $ to begin this year. But that topping process could go on for a while, with rallies and reactions (distribution), but the end to the relentless rise may be enough to begin to take some pressure off of gold. It’s very easy to make this job overly confusing. But working hard and always being prepared will dwarf all the extraneous stuff where we are trying to “decipher” and “figure out” all of the time. So doing the little things in this job every single day is way more important.
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