The USD Index began to rally roughly one month ago and the third column from the left shows the 1-month returns relative to the dollar. You can see that only 6 out of 34 currencies and metals declined relative to the USD while 82% of them rallied, which indicates this countertrend bounce has been incredibly weak. A strong reversal in the dollar such as was seen in the summer of 2008 or late 2009 often occurs when it displays widespread strength. As shown in the table below, whether one looks at a one day relative return or a one year relative return, the USD Index is weak on a global basis and is not showing improving strength that would indicate a major reversal of its bearish trend.
FOR THE SLOW PEOPLE OUT THERE THE DOLLAR IS DOWN AGAINST ALMOST EVERYTHING IN JUST THE PAST YEAR, ADD IN INFLATION AND IT GETS MUCH WORSE. ADJUST YOUR INVESTMENT RETURNS FOR THIS AND YOUR GETTING KILLED!
I GUESS IGNORANCE REALLY IS BLISS, AT LEAST UNTIL YOU FIND OUT IN THE LONG TERM!
THE FEDERAL RESERVE AND CENTRAL BANKS WORLD WIDE HOPE YOUR DUMB ENOUGH NOT TO HAVE NOTICED THIS! ARE YOU? DO YOU UNDERSTAND WHAT IT MEANS GOING FORWARD?
If the dollar does experience a decline similar to 1978 (declineing over 15% in less than four months), one of THE primary beneficiaries would likely be commodities in general, and precious metals in particular. With gold already approaching $1600/oz, some have a hard time imagining how much further it can advance. One way to analyze gold is on a relative basis to help create some price targets, and rather than purely analyze how high gold can rise, we also need to analyze how far the USD can fall as gold and the USD are two sides of a the same coin. Thus, looking at the value of US governmental holdings of gold bullion in relation to the US monetary base helps in determining some price targets for gold and to gauge how expensive it may be.
Shown below on the left hand side is the percentage of the US monetary base backed by the value of US governmental gold bullion (ounces of gold * current price). On the right hand side is the required price of gold necessary to back the US monetary base to a set percentage with 25%, 50%, and 100% backing shown. I'd like to make a few quick points. First off, please note that the beginning of the secular bull market in gold in the 1970s that took it from $35/oz in January 1970 to $835/oz ten years later (+2285%) began with gold representing a mere 17.8% of the US monetary base. By the middle of the decade after the first big run in gold US government bullion holdings represented 58% of the monetary base, and by the peak in early 1980 the value of governmental gold bullion represented 131% of the US monetary base. By the time the secular bull market in gold was over, the value of US gold bullion represented more than the entire monetary base!
While it may come as a huge surprise that after rallying from $254/oz in 2001 to a recent high of $1577 (+520%), the present value of governmental holdings of gold bullion backing the US monetary base is currently BELOW the starting point of the prior secular bull run in gold!
I believe this point is too big not to reiterate, the present value of gold bullion relative to the US monetary base is BELOW where it stood at the beginning of the last secular bull market.
This is due to rapid expansion in the monetary base caused by quantitative easing (QE) round one and two by the Bernanke Fed which has more than doubled the monetary base in short order.
To bring the gold backing of the monetary base to 25% would require a gold price of $2382/oz, and for 50% gold backing would require a price of $4763/oz, which would still be less than the peak seen at the mid point for the last secular bull market in gold in which by mid 1970s government gold holdings represented 58% of the monetary base. For 100% gold backing of the monetary base we would need to see gold rally to nearly $10,000/oz.
I HOPE ALL THE DUMB ASSES, THAT'S ABSOLUTELY RIGHT, DUMB ASSES, OUT THERE TAKE A LONG HARD LOOK AT THIS AND REALIZE HOW ABSOLUTELY MORONIC IT IS TO INVEST IN EQUITIES AND BONDS IN THIS ENVIRONMENT. YOU CAN'T BE A PROFESSIONAL INVESTMENT ADVISOR AND BUY INTO THE MAINSTREAM STORY! IDIOT, YES! PROFESSIONAL, HARDLY! I WOULD BE EQUALLY STUPID IF I ATTEMPTED TO PREDICT EXACTLY WHEN THE MOMENT WILL ARRIVE, IT IS CLOSER EVERY DAY AND THE MARKETS KNOW THIS.
As you can see, it is highly erroneous for anyone to call gold a bubble as we do not have an over abundance of gold bullion as we did of technology companies in 2000 or a glut of homes in 2005-2006. What we do have is a glut of US dollars.
BUT PROFESSIONAL IDIOTS HAVE AN AGENDA AND CAN'T SEE PAST THEIR IDIOTIC OPINIONS! THE NASDAQ WILL NEVER FALL! HOME PRICES NEVER DROP! THE FED WILL FIX EVERYTHING.......
Shown below is the growth in the monetary base and global gold production. Since 1990 the monetary base has grown by 570% thanks to the Federal Reserve, while global gold production has grown by a mere 21%.
READ THAT LAST LINE A NUMBER OF TIMES, S L O W L Y IF YOUR AN INVESTMENT PROFESSIONAL OR YOU WENT TO AN IVY LEAGUE SCHOOL AND THEN TAKE SOME TIME AND T H I N K ABOUT IT. BY THE WAY IT IS SIMILAR FOR SILVER AND MANY OTHER COMMODITIES SUCH AS OIL. THEY ARE ONLY GOING UP UNTIL OUR FEDERAL RESERVE IS STOPPED. BUY AND HOPE IS DEAD!
So I ask you, where is the supply glut characteristic of a bubble, in US dollars or gold bullion?
Over the course of the last few years major pivot points in global financial market relationships have been centered around moves in the USD.
We are at yet another major inflection point and what the USD does from here will likely have widespread implications.
IF YOUR ON WALL STREET OR IN ANYWAY CONNECTED TO THE MARKETS AND YOU DON'T CONSIDER THE IMPLICATIONS OF THESE FACTS, YOUR CARREER IS EFFECTIVELY OVER IN THE NEXT FEW YEARS, AS INVESTORS ARE NOT GOING TO CONTINUE TO BE FOOLED BY IDIOTIC IN VESTMENT ADVICE THAT GETS BLIND SIDED WITH EVER INCREASING FREQUENCIES AND INTENSITY.
If the USD Index tracks the path of the 1970s and witnesses a sharp decline in the months ahead, a sign that this is happening would be a decisive close of the USD Index below its 50 day moving average. My personal leaning is towards a USD decline given the widespread weakness relative to global currencies and precious metals. If the USD does experience an accelerated decline in the months ahead, then precious metals are likely to be the ultimate beneficiary.
Since the early part of May the USD Index has been experiencing a short-term rally in which it looked like it was going to make a move to test its 200 day moving average similar to its rally in November-December of 2010. Once the USD Index broke its 50 day moving average (green line below) the bearish trend resumed. Presently the USD Index is testing its 50 day and 20 day moving averages and a decisive close below both would likely indicate the dollar is continuing its decline. Given the break in the multi-year pennant formation, the USD's decline may accelerate to the downside.
Since the top earlier last week, the Index has shifted into a mini-collapse that quickly violated the short-term rising trend line, and changed the outlook from moderately positive to negative. Note that the 20-EMA was very close to crossing up through the 50-EMA, which would gave generated a buy signal. Now the Index is below both EMAs, meaning that they are now declining and diverging. The PMO has topped.
The weekly chart shows that long-term overhead resistance is still an issue, and we can see that the Index turned down prior to reaching either of those lines of resistance.
Bottom Line: Several weeks ago it appeared that the Dollar Index was on the verge of a total collapse. At that point the most probable possible outcome was that the bear market rally in the dollar would fail before it was able to cause a new buy signal to be generated. That is what appears to be happening now. The next thing we should expect is a retest of the May lows.
The Dollar Index is in a long-term bear market. Our expectations should be shaded by that fact.
THE FED MAY BE ABLE TO SAVE US A FEW MORE TIMES BUT THE FEDs SALVATION WILL
BE WEAKER WITH EACH DESPERATE MISGUIDED ATTEMPT AND ECONOMIC DEVASTATION LIES AT THE END OF THE FEDs REIGN. IF YOU THINK DIFFERENTLY, YOU REALLY ARE AN INVESTMENT "PROFFESIONAL"!