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The US Dollar vs. Gold – The Clash of the Titans

01/06/10 by Nick Thomas  
Filed under Bourbon & Bayonets

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In my last column, my predictions for 2010 (or at least the first part of it) were that both the stock market and commodities are destined for a fall, and that the dollar is the only major asset primed for a significant rise. This generated such reader comments as …

  • “I believe commodities are the thing for 2010. The dollar continues to give ground. I say you are WRONG in your prediction.”
  • “… based on the US govt’s incredible spending, there is a likelihood that gold will be the one to go up, not the dollar. The government has to devalue it to pay for everything it wants to pay for. I would say you are off base.”
  • “As long as the US spends like drunken sailors, the dollar will get weaker and weaker. Continue to short the dollar. Gold is in uncharted territory but will remain the safest harbor until there is a change of government policy.”
  • “I am inclined to agree with the majority of your prognostication with the exception of the US Dollar strength. I cannot see how the USD can gain strength because the Administration/Federal Reserve has increased the money supply out of proportion to its intrinsic value.”
  • “Can the Dollar gain strength with all the printing presses going full speed ahead?”

There is some merit in all these comments, of course. But what matters in the markets is…

  1. the perceptions of those looking to invest, and
  2. the value of a given asset relative to others

Before I start in on those topics, let me state the following;

I do believe that longer-term, the US dollar and, for that matter, any paper currency is ultimately going to go the way of the Confederate dollar before this crisis is over. In fact, I think what will eventually draw a line under the worsening economic climate will be an announcement by a major country/region that they will be backing their currency with gold regardless of what the IMF or the rest of the world’s central bankers have to say about it.

That said, it will be a while yet before any of this comes to pass. Whoever is brave enough to try such a bold move will probably have to be armed to the teeth. Otherwise they won’t be able to forestall a military-based attempt at a “currency attitude adjustment” from the followers of paper currency. There is no way the followers of paper currency will give up the ghost without an all out knock down barroom brawl.

The only country strong enough to do such a thing at the moment is the US of A — and our government is one of the least likely to endorse the fiscal responsibility that gold backing enforces upon a currency regime!

In fact, the US government is going to be the most aggressive at trying to prove the supremacy of paper dollars over gold.

For the next little while they’ll probably succeed. Take a look at the GAP between the current gold price and its 50 week moving average and you’ll see why…

The last time the gold price raced up past that 50 week average (and peaked in both the Stochastics and MACD indicators) it first stagnated and then corrected fairly sharply.

The weakness lasted for a good 10 months. Of course there’s no guarantee that the same thing will happen again but any time any asset “runs away” from its moving average there is going to be a period where it loses power and momentum and allows its moving average to catch up to it.

So Where’s Gold Going Then?

Considering that gold finally stabilized at a level of previous resistance the last time around ($700 in October 2008) it’s fair to project that a similar drop would level off at the $950-$1,000 mark a few months from now. That would be roughly where the 50-week moving average sits at the moment (or perhaps even a bit lower than that).

Based purely on fundamentals and what we know of the printing presses, deficits, fiscal irresponsibility and so forth – this sounds absolutely preposterous, doesn’t it?

But the charts are hinting rather strongly that it will happen.

Here’s the latest chart of UUP (the PowerShares DB US Dollar Index Bullish Fund) …

The volume spike I talked about in the last column is tailing off and right now UUP is overbought on the Stochastics indicator. However, the very heavy volume at the bottom would indicate that some very serious players are betting on a significant rise in the US dollar.

What Do They Know That We Don’t?

Probably that the US government is going to throw everything it can at the dollar in the next little while because they have to persuade the world that US debt is a good thing to buy and hold.

After all, a massive amount of debt is going to have to be issued this year to cover the widening deficits the government is trying to fund. Without a (perceived) strong dollar there’s no way that debt is going for anything less than fire sale prices.

That would be a disaster the government and its backers really don’t want to even begin to contemplate, so they’re going to throw all the financial weaponry at it as they possibly can.

How long they can keep it up remains to be seen, but you can bet that it will be for a few months unless the US government has truly lost its influence (I don’t think it has, even though it’s weaker than it once was). Don’t forget that the USA is still a major financial power and there are enough parties with vested interests (i.e. current US debt-holders) who aren’t about to stand in their way.

Why not? Well, let’s say you’re holding a whole bunch of dollars right now that you’d love to get rid of.

Don’t you think it’s likely that the Chinese — amongst others — might just use a US dollar rally to begin dumping part of their USD holdings? They’re not going to squelch a USD run that facilitates such a dump which also cheapens something they’d much rather be accumulating: gold.

And even if they’re not truly hardcore goldbugs, a lot of other non-USD alternatives will get cheaper too. Take a look at the dollar’s main paper rival – the Euro has some problems of its own …

Just like gold, the EUR collapsed by quite a ways once it decisively broke through its moving averages after a MACD crossover (red arrow). A very similar situation is developing today, just as with the gold chart.

So are the Chinese truly looking to accumulate a few extra Euros too? Well, we won’t know for sure until after the fact — but Euros are likely to go on sale for a discount in the next few months.

Bear Market Rallies Can Be Brutal

The USD is therefore looking quite tempting for those looking to profit from a bear market rally – which is exactly what this is when you look at the longer term historical picture of paper assets vs. hard assets in a financial crisis.

The rally won’t last forever.

But when you see how successful “The Powers That Be” were at ramping up the stock market last year, there’s no reason to believe that they won’t pull out all the stops to do the same for the dollar this year.

It’s much tougher to manipulate the forex markets than the stock market, but as you’re probably aware, we’re living in an era of unprecedented government interventions in the free markets. And there are a LOT of vested interests that would love to see a dollar rally this year — even if it means stocks and most other paper currencies take it on the chin for now.

The elephants are leaving some pretty big footprints, and those footprints are telling us that the USD is going to demonstrate real strength at gold’s expense in the short to medium term.

Good Investing,

Nick Thomas,
Analyst, Bourbon & Bayonets

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Comments

53 Comments on "The US Dollar vs. Gold – The Clash of the Titans"

  1. Dave T on Wed, 6th Jan 2010 6:15 PM 

    Where do you think interest rates are heading short term? Is it time to dump bond funds?

  2. Harry B on Wed, 6th Jan 2010 6:15 PM 

    I was wondering about the little guy who cannot afford gold ,but can afford silver. what about companies making silver, silver bullion like ITRO-ITRONICS and other silver makers.

  3. T NOON on Wed, 6th Jan 2010 6:40 PM 

    Your quote: “The last time the gold price raced up past that 50 week average (and peaked in both the Stochastics and MACD indicators) it first stagnated and then corrected fairly sharply. The weakness lasted for a good 10 months. Of course there’s no guarantee that the same thing will happen again but any time any asset “runs away” from its moving average there is going to be a period where it loses power and momentum and allows its moving average to catch up to it.”

    COME NOW. Increasing the money supply (total, including debts) is tantamount to doing an X% stock split every quarter. Each share of stock is “worth” it’s share of the total market cap of the company. If a monthly stock split occurred, and you didn’t adjust your historic stock price accordingly, of course, the price per share would drop (assuming constant P/E and constant “E”) accordingly. You cannot call gold just any other “asset” when, long term it’s value is the inverse of the supply of paper monies in circulation and that supply is rising dramatically. If they print 50% more money (including debt) and the price of gold rises to $1700, the price has changed but the value of that $1700 in gold has not really changed. You will still be able to buy an equivalent amount of -whatever- with an ounce of it….20 ounces to buy a $22,000 Volvo or one ounce to buy about 10 barrels of oil.

    The “value” of gold at $1700 can be equivalent to $1100 today. You are mixing up terms when you are talking about 50 week moving averages and current pricing in an era of skyrocketing money supply.

    The gov’t cannot simply create wealth by printing $1 Trillion in paper currency. That pile would weigh about 11,000 tons in $100 bills, but (other than the fancy lettering and pictures) would be worth the same as 11,000 tons of paper….about $550,000. BUT, it would take $550,000 to buy that much paper upon which to print those cool pictures and lettering.

    You talk as though paper currency had some intrinsic value in-&-of-itself. Tell that to the people of Mexico or Zimbabwe.

  4. B Saunders on Wed, 6th Jan 2010 6:44 PM 

    There are so many factors that affect the dollar, it’s really hard to argue against any predictions either bullish or bearish. One thing that can affect the dollar is short term interest rates. The U.S. can afford a lot more debt at low interest rates than it can at high rates. The Fed can keep the interest rates low as long as inflation is not a problem. The reason inflation is still low despite the massive amount of liquidity pumped into the system is the losses in capital due to the decline in stock and real estate prices. While the Government pumped in nearly a trillion dollars in TARP and another trillion in stimulus, the capital loss in the S&P 500 was nearly 6 trillion dollars. As the stock market and real estate prices re-inflate dollar inflation may become a problem, but that time may be a long way in the future.

  5. Jeff F on Wed, 6th Jan 2010 6:49 PM 

    I have found it very interesting all of the companys trying to sell gold on TV right now. A year ago I never heard of but maybe two of the companys trying to sell gold & silver coins and bullion.

    If they think the price of gold & silver are going up as they purport, then why are they trying to sell off all of their reserves?

    Food for thought.

  6. darrell dixon on Wed, 6th Jan 2010 7:08 PM 

    back when they were coming out with the euro ….they were selling gold to buy currency …that is when a gold futures firm said go-long ….the washington accord i think they called it …my question is ….did it make europe any stronger …its almost like the gold standdard…england backed out …did it make them aqny stronger

  7. T NOON on Wed, 6th Jan 2010 7:08 PM 

    Jeff F –
    These guys are just brokers. They buy and sell for a spread. You can buy gold bullion from Monex for 1-2% below the current spot price for gold and they will also sell you gold bullion (bars or coins) for 1-2% above the spot price. They hold some inventory, but only enough to keep the flow moving.
    They are not selling gold because they think it is too high — any more than they buy and load up if they think it is too low. They just handle the transaction between buyers and sellers — and there are always buyers and always sellers because there are always people who need the cash and people with cash they want to “invest”. There are always people that think gold is going up and those who are thinking it is going down – and want to sell some.

    If there were not a balance between those two groups, the price would rise or fall until the balance of opinion was again in balance….which it does every day.

    Those advertisers are just helping the buyers and sellers of bullion to find one another — for a fee.

  8. Charles Reid on Wed, 6th Jan 2010 7:49 PM 

    Nick, I learned an expensive lesson in 2009 – following a “guru” that said the market would crash. I agree with most of your comments and will follow the elephants footprints, as the Cartel(Fed, GS, etc.) is stronger than most give credit. The only disagreement is I see gold going below $680 , before going parabolic later this year. Thanks for a thoughtful analysis, but as they say , timing is everything and I’ve learned that “when” is more elusive than “what” in the markets.

  9. willem griffioen on Wed, 6th Jan 2010 7:54 PM 

    I think you are on to something
    I will watch closely to see how it unfolds
    Thx

  10. Bob Lesher on Wed, 6th Jan 2010 7:58 PM 

    Your position on a stronger USD has merit. But please factor this in as I do not have the intelligence to fathom the iterations here.The strength of silver and platinum may have a buffering effect on your position. Silver in particular.We all are aware that the central banks have been manipulating the precious metals market for years.It is my belief they are most concerned about silver.It has been a theory that there is less above ground silver than gold. Although debatable, there is evidence that above ground silver is nowhere near the geological ratio. Silver is used up,by technology, medical and other sources.Please address this.

  11. Sam on Wed, 6th Jan 2010 8:09 PM 

    The US has been printing dollars since before W W II. Does anybody know the figure for total US dollars out there in the world?????
    If you google the number, you will not get any real true figure!!!!
    Oakshire has put their finger on some real possibilities. The US$ is being supported by powerfull forces that get their way.
    Now if Oakshire can identify these forces then I can say that they are in the “KNOW”. Well the US impire is not Zimbabawey… and it is able by power of its vast resources, be it financial, millitary or just arm twisting to exercise its best interest and have its way. until some thing gives… At present, I am buying dollars and dumping gold.

  12. tom e on Wed, 6th Jan 2010 8:15 PM 

    what would be the the best way to play the stronger dollar

  13. Charles on Wed, 6th Jan 2010 8:26 PM 

    Dear Mr. Thomas,

    Thanks for the comments on the dollar and gold, I always enjoy your articles. As to the charts on each, I think you are right on the money(whichever kind you choose). I won’t be buying and holding either of these “assets” as they tend to gyrate and switch places over time. I will, however, trade them as they do and hope to produce some greenbacks with which to wallpaper my bathroom, and buy some canned goods along the way, to pile up under my bed.

    Thanks again for a well done and thought provoking treatise.

    Best regards,

    Charles A.

  14. Juan Elizondo on Wed, 6th Jan 2010 8:28 PM 

    Gold has been moving in 2 year cycles since the “secular” bull really caught fire in 2005. Fall 2005 – Spring 2006, gold made new highs with a minor pullback around December before a blowoff in May. Fall 2007 – Spring 2008 gold made new highs with a minor pullback around December area before a blowoff in March. Fall 2009 – Spring 2010, gold will PROBABLY make new highs with a minor PULLBACK AROUND DECEMBER before a blowoff probably sometime in March through May.

    The MACD top in the chart in your article is acutally, in my opinion, the “minor” top before gold shoots up to a final blowoff somewhere around $1402 – $1435 based on the percentages the last two upcycles gained.

    Nothing is guaranteed but the last two times gold broke above highs this happened. It is LIKELY, in my opinion, to happen again.

    Thanks

  15. Jerry Cox on Wed, 6th Jan 2010 8:50 PM 

    I see your logic that powerful vested interest are ready and able to flow money from equities and commodities to a strong dollar. However, I question the “able” part even in the short term due to two pendng events:

    (1) food shortages which will hit by March/April and being denied by the USDA.
    (2) earlier than anticipated resetting of the second wave of adjustable-rate mortgages (the “teaser rate” versions) triggered by reaching their debt caps.

    These events should bring our already weak global financical system to its knees. Consequently, the manipulators will lose control, the dollar will crash, and commondites will be competing with gold for the stratosphere.

  16. Robert Dullien on Wed, 6th Jan 2010 9:02 PM 

    What about the Canadian dollar as relates to the US$

  17. Dan on Wed, 6th Jan 2010 9:06 PM 

    Has the US Gov intentionally kept the USD weak since the beginning of the last Republician Administration, or did it start earlier?

  18. Gunnar on Wed, 6th Jan 2010 10:18 PM 

    …you write with compelling authority…
    …since I have my very modest amount of money invested inside the sphere of the swedish crown (krona), I am very ok with a weak and weakening dollar, even though the krona tends to loosely follow the dollar…
    As a resident and “foreign observer” in Los Angeles, I have come to the conclusion that the american union is at the root of precisely everything that is problematic with the american “example” and that it should be challenged and ultimately broken.
    The union serves only as a catalyst and generator for obscene power that inevitably gravitates towards extreme criminality…which is of course where we are right now…
    There is no solution to that except to fundamentally alter the principles upon which this wicked union has been based – or do away with it altogether. – Plenty of states would be perfectly viable as fully sovereign nations and those that aren’t, should consider forming blocks that would be.
    gunnar
    la, ca

  19. Harry L Schroeder on Wed, 6th Jan 2010 10:24 PM 

    I’ve only received 2 of your letters, but I am very impressed and enjoy/respect them. I played around in the market last year, and made some money when things tanked in gold. I just wish I had held on to the stocks. However, I have been sitting on a good sum of money ,all free of taxes, wondering when and what to do. Currently this is in about 3.6% tax exempt munis. I am really concerned about those bonds.No exposure to you, but would you buy bullion/coins now, or wait till we have a pullback? how far back would you wait? I am not asking for advice, so relax. Just an opinion—Thanks

  20. bob hollandr on Wed, 6th Jan 2010 10:46 PM 

    Don’t forget to tell your clients to buy gold, the meal gold, not coins.
    Coins have a high commission rate so it takes years for coins to catch up to gold price increases.
    Much better off to have metals.

  21. T NOON on Wed, 6th Jan 2010 11:16 PM 

    Well, now, I am just going to have to firmly disagree with your “observations” as well as the conclusions that you have derived therefrom. The American experiment is a wonder and a marvel. It has gotten itself directed into muddy ditches from time to time but has always found its way back onto the straight and narrow paved road due to the blood and courage and wisdom of past citizens. America is a dream and a shining beacon on the shore of stormy seas for countless billions of non-Americans. Yes, it has it’s weaknesses and has been abused by many of her former and current citizens. But, I do not judge an entire football team by the reckless drunkenness of one adolescent linebacker that beats up his girlfriend. America has a soul that can only be seen from a distance and not understood by those who would turn its back on murdered and abused citizens in countries around the world. Why would one nation behave so? It must have ulterior motives – motives that are evil and crass. One nation could not ever send it’s sons around the globe to die simply for the freedom of others – for “justice”. — with the simple goal of freeing and saving those who need freeing or saving??
    Some people who grew up in other cultures will never understand these behaviors — or those of “capitalists” (a word synonymous to them with “greed” or “economic cruelty”). To them, the only form of government or economic order is socialism…one in which any sense of economic freedom has been thoroughly purged.

    “Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.”
    Alexis de Tocqueville – 1841

  22. Fred on Thu, 7th Jan 2010 12:05 AM 

    Nick,

    Since the current gap is smaller than the gap of Feb/Mar 09 and more like the Nov/Dec 07 pause one could say with some legitimacy that the current reading is only a pause/pullback at the halfway point in the move.

    Sometimes we see what we want to see.

    Thanks,

    Fred Z

  23. Lily on Thu, 7th Jan 2010 12:09 AM 

    Just wondering about HS$, is still pegged to USD.
    What is the rationale behind this weak currency policy?
    As the China RMB is appreciating against HKD, what is HKD’s likely currency policy?

  24. lamont cranston on Thu, 7th Jan 2010 12:24 AM 

    Given the mood of the Congress and their weak spines they will never retreat back to the gold standard. And I think that there is another country that might just have the will to step up to the plate and go with the gold stand, and that is Australia.

  25. Roy Erasmus on Thu, 7th Jan 2010 12:52 AM 

    Hi,
    What does it take, even for a small country, to pin its currency to gold?
    #

    T NOON on Wed, 6th Jan 2010 6:40 PM

    If I read you right, the worlds currencies are pinned to gold if they like it or not. Investors have the freedom to invest in FX or gold, and the price of each will reflect the markets sentiment as to the value that millions of analysts (investors) gives it.

  26. Bob on Thu, 7th Jan 2010 1:24 AM 

    I agree that the US dollar may be poised to rally. Despite all its shortcomings everything is relative. Pardon me for saying so, but the euro is a piece of garbage that makes no sense. It is the creation of a bunch of politicians with no economic background. Most glaring is that although the ECB has control over monetary policy (reluctantly ceded by some members), it has no control over fiscal policy of its members. It seems that the Japanese yen may be poised for a decline and will then replace the US dollar as a carry trade currency. Therefore, those who have been using the US dollar for carry trade may soon have to cover their positions and this may propel the US dollar. The Canadian dollar has been strong lately but with poor productivity and over taxation, yikes you can feel the pain of the non-resource export industries!

  27. Dana Swain on Thu, 7th Jan 2010 1:48 AM 

    In reference to your comments on the dollar vs. gold.
    Will gold prices drag silver down with it?

  28. jerry mcdonald on Thu, 7th Jan 2010 4:59 AM 

    the dollar,geithner,bernake,and obama – all on the way out .If they live another year,i’ll be surprised.I’ll dance at their funeral.

  29. H Krähenbühl on Thu, 7th Jan 2010 7:34 AM 

    very interesting contrary opinion, will follow up next times
    Thanks for your excellent analysis

  30. Gordon P. S on Thu, 7th Jan 2010 7:53 AM 

    I have never understood how anyone can put any degree of confidence in technical analysis of markets that are known to be rigged, such as the gold and silver markets surely are.
    [ex-stockbroker with E.F. Hutton, degree in economics]

  31. John S on Thu, 7th Jan 2010 8:15 AM 

    Yes, this eye opening evidence should give inside to investments for the year. Thank you

  32. Jesse on Thu, 7th Jan 2010 8:54 AM 

    Figures don’t lie, but liars figure. The only way the USD can be strengthened is to “lie like heck”. This distortion will likely be followed for a short while by many. However, the truth will set gold up to skyrocket again. My strategy at this point is to to look long and let the lies continue to build a house of cards. Gold may fall a little in the short term, but the spending going on in Washington will not abate the printing presses. Ultimately, that is the problem and it will not go away until there is an economic collapse to bring it to a halt. If there is military action to defend the USD, then all bets are off and gold is really the only solid ground to stand on.

  33. GEORGE F on Thu, 7th Jan 2010 9:05 AM 

    OF COURSE WE ALL WOULD AGREE THAT THE US GOVT NEEDS A STRONGER DOLLAR TO SELL THE HUNDREDS OF BILLIONS OF BONDS IT NEEDS TO KEEP THE FALSE PARTY GOING UNTIL ELECTION TIME, BUT THERE IS A LEVEL OF SATURATION GLOBALLY WITH US DEBT THAT SIMPLY CANNOT KEEP SOAKING UP ALL THIS DEBT. ALSO, THERE ARE MANY, MANY PEOPLE WHO SEE THE ABSOLUTE INEVITABILITY OF THE DOLLAR COLLAPSE, WHO ARE WAITING FOR GOLD TO RETREAT SO THEY CAN BUY IN LOWER. ALSO, I FEEL YOU MAY BE OVERLOOKING THE MOUNTAIN OF BAD COMMERCIAL REAL ESTATE DEBT THAT WILL GO BAD THIS YEAR, SERIOUSLY AFFECTING MANY MAJOR U.S. BANKS THAT WERE ABLE TO AVOID DISASTER SO FAR FROM THE RESIDENTIAL MELTDOWN ( WHICH ITSELF WILL WORSEN CONSIDERABLY IN 2010),AND THEY WILL NOT SURVIVE THE COMMERCIAL DEBACLE. AFTER 760 BILLION TO RECAPITALIZE US BANKS, WE STILL HAD OVER 140 BANK FAILURES IN 2009. IN OTHER WORDS, THE BANKS A HELL OF ALOT WORSE OFF THAN WE ARE BEING TOLD.

  34. Ron on Thu, 7th Jan 2010 9:40 AM 

    Nick, Is there any way that we can post a chart within our comments short of having a website outside of the comment page ??

  35. jay w, dds on Thu, 7th Jan 2010 10:02 AM 

    I would consider the Canadian dollar rather than the Euro as our currency rival . Which gov’t and economy is in a better position ?

  36. robert v on Thu, 7th Jan 2010 10:02 AM 

    High Fidelity at it’s best.
    Thanks

  37. Art on Thu, 7th Jan 2010 10:38 AM 

    I’ve been buying silver now & then for over 10 years, not only because it’s so much less expensive than gold, but because long-term I believe the gold/silver ratio will move back to its historic range, or @ least a lot closer than it is now. I’m curious as to your thoughts on silver & on playing the ratio, as in trading gold for silver when the ratio’s quite high & trading silver back for gold when it drops, without ever buying either with dollars.

  38. paul on Thu, 7th Jan 2010 10:53 AM 

    actually,the whole scam that is the western world is ready to collapse.
    it won’t be long.
    nobody will want to put it back together again

  39. Frank on Thu, 7th Jan 2010 11:43 AM 

    I agree but don’t forget that 2009 was cheap money pumping up many asset classes. The rise in December could be short sellers temporarily liquidating their positions to pay taxes that increase in 2010.

  40. cave j on Thu, 7th Jan 2010 12:36 PM 

    I’m not familiar with your (or most other advisor-commentators) record, but you must have had some quite successful positions to advocate this hard contrarian stance. What ETFs are viable vehicles for USD plays and who are the “elephants”? Thanks Cave

  41. john f on Thu, 7th Jan 2010 1:10 PM 

    the govt wants the$ to fall so inflation makes the debt easier to repay the govt will manipulate any and all statistics to make it appear that it has control over the economy it does not have control and continue to lose ground there are natural laws in economics that cannot be violated without consequences the govt is kensian this is opposed to natural economic law and will fail J F

  42. Sam on Thu, 7th Jan 2010 1:27 PM 

    By the way, gold is trading like a commadity not like curruncy…. so the fear from a colpsed dollar will drive real assets… mostly natural resources… it is the only real welath specilly the one with finite quantity ie. oil is the king followd by strategic metals. So, for the gold fan club, Gold is useless if a major collapse happen. If the confidance in the dollar collapses, and evantually it will, you need to be holding some type of ownership of real resource not a shiny peice of useless jewelery.

  43. jean p on Thu, 7th Jan 2010 2:18 PM 

    yes I agree, even if i intend to verify the trendings between major markets.
    At the end, surprisingly, money is scarce

  44. John K on Thu, 7th Jan 2010 2:48 PM 

    You are missing one very big item in your thinking.
    The Chinese are p;ushing 1.3 billion persons to buy gold and hold on to it for retirement.

  45. John N. on Thu, 7th Jan 2010 3:54 PM 

    Interesting commentary. I would like to know what impact you think these financial cross currents will have on the market indexes?

  46. Jim L. on Thu, 7th Jan 2010 4:05 PM 

    As a pure commodity play, gold based on inflation and growth rates, is way over priced. Using the 17x multiplier and if gold was correctly priced at $35 per ounce in the 1930s it should command a price of roughly $600 per ounce. Also one can not turn on a radio or TV today without hearing a commercial about the sagasity of gold purchase and ownership. To me this signals a bubble. However I have a modest position in gold and wonder like the rest of us, when will the rally end.

  47. T NOON on Fri, 8th Jan 2010 7:08 PM 

    GOLD IS NOT OVERPRICED.

    YOU CANNOT DRAW CONCLUSIONS FROM THE GOV’T-ISSUED INFLATION FACTORS. CPI IS NOT AN INDICATION OF TRUE UNDERLYING INFLATION OF THE DOLLAR; IT IS A GOV’T TOOL. GOLD AND OTHER HARD ASSETS ARE A TRUE INDICATOR OF INFLATION — SO YOU CANNOT USE CPI WHICH IS NOT A MEASURE OF INFLATION AND THEN CALL “A BUBBLE” ON THE PRICE OF GOLD WHICH IS A MEASURE OF INFLATION.

    GRANTED, THERE IS ALWAYS SOME PORTION OF THE PRICE OF GOLD THAT IS OVER-VALUED OR UNDER-VALUED DUE TO SPECULATION OF HOW FAST IT WILL RISE IN VALUE (relative to the actual price that it should be selling for on any given day). BUT, UUP HAS FALLEN 15% SINCE NOV’2008…SO THE DOLLAR HAS FALLEN IN VALUE RELATIVE TO A BASKET OF RANDOM WORLD CURRENCIES 15% IN ONLY 14 MONTHS — WHILE THOSE OTHER CURRENCIES ARE ALSO BEING DEVALUED.

    GOLD IS THE STANDARD — IT WILL TAKE MORE PAPER TO BUY IT IF THERE IS MORE PAPER IN CIRCULATION (in all its forms, including debt) — AND LESS PAPER TO BUY IT IF THERE IS LESS PAPER. WILL THE SUPPLY OF MONEY EVER DROP?

    NO.

    THE GENERAL MARKET (and the value of real estate, etc.) IS LIKELY TO “BENEFIT” FROM THE ONGOING DEVALUATION OF PAPER MONEY…THE ONLY QUESTION IS: DO YOU WANT TO OWN AN SP500 INDEX THAT RISES 10% DUE TO INFLATION WHILE INFLATION IS ACTUALLY 15%?? THAT MEANS THAT YOUR 15% “PAPER” GAIN IS ACTUALLY A LOSS IN BUYING POWER.

  48. jas on Sat, 9th Jan 2010 5:45 PM 

    I liked yor article and I agree USD

  49. jas on Sat, 9th Jan 2010 5:47 PM 

    I liked yor article and I agree USD. cAN U SAY MORE DETAILS ABOUT UUP PLEASE.It look very ineresting but i’ve never heard of it. MACD looks bad but stochs good!!
    Thanks
    Jas

  50. Helge H. on Sun, 10th Jan 2010 1:31 PM 

    Thankyou! It seems your charts and opinions correspond perfectly with Ronald Rosens charts and comments, like I have one printed out from nov.23. 2009, titled ‘Sunday Sermon” logarithmic monthly chart produced and commented on acc. to The International Delta Society.In his word: First the dollar rally, then the dollar bust- and first the Gold Bust, then the Gold Boom! THIS LAST WAS Written Oct 15 2009.

    SINCERELY, GOOD LUCK INVESTING!

    Helge.

  51. Gordon C. on Tue, 12th Jan 2010 6:41 PM 

    I can see the U.S. dumping it’s primary debt but how will the interest on this sum ever be anything but that “elephant”
    I would be the last to ever want to see the states miss these kinds of repayments but these amounts are so staggering I can’t
    imagine the compounding. Then add on the daily cost of the war it’s just nuts.
    Gord

  52. C.V.S. Murty on Sun, 17th Jan 2010 2:46 AM 

    Dear Sir,

    The idea of Gold-backed currency is ok, but there is not enough gold in the world to back any currency. Obviously, there will be contraction of money. A possibility is that the value of gold will skyrocket. Any enlightening views from your side?

    Thanks
    CVS Murty

  53. Robert A. on Thu, 21st Jan 2010 12:53 AM 

    Hi Nick,

    I completely agree with what your saying and have been telling others almost exactly the same thing, as far as how long this will take will depend on everyone standing in line and not jumping the gun which I don’t believe is possible. Therefore I disagree with your thinking it will take a few months, a few weeks maybe. As you well know when The whole market is thinking the samething it makes it all the more NOT likley to happen. I read alot of gold related articles and I think yours are some of the best.

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