Originally published by Chamber of Merchants
If you’ve been following my posts, you’ll know that I am nose deep in Australian precious metal miners and explorers. That’s also because I’m super bearish on the U.S Dollar.
In case you didn’t know, if you’re trading or investing in gold and silver miners, a falling U.S Dollar is 90%+ correlated with a higher price of Gold. Academically speaking we would say they are negatively correlated. I dedicated an article to the topic of the “Relationship between the U.S Dollar and the Price of Gold”. The chart below shows how the U.S Dollar falling results in a rising Gold price and vice versa.
Gold Vs U.S Dollar | Gold and the U.S Dollar move inversely
To understand where I believe Gold and Silver are headed ( as well as the portfolio I hold such as EXG, MOY, RMS, BLK, SVL etc) we need to look at what I expect from the Dollar in the coming weeks.
U.S Dollar Short Term Chart | Looks Bullish But Buyer Beware
U.S Dollar Hourly Chart August to October 2016
In the above chart, you can see that the Dollar has broken through some resistance levels and looks pretty bullish. This can be coupled with some reasoning about an anticipated Hillary Clinton Election victory, a “Goldilocks Jobs Report” (give me a break), an anticipated rate hike in November, U.S Dollar as a safe haven against other failing economies [debatable] etc. So if you’re looking for fundamental reasons to go long on the U.S Dollar it’s easy to name some basic but flawed assumptions to justify why the U.S Dollar should go even higher. [“long” means you’re expecting an asset to go higher in price. Bear means you’re expecting price to go down]. Now momentum traders and possibly some institutions/funds would be happy to pursue this momentum, especially on a minor pull back such as you can see in the price above. A pullback with an apparent support zone marked by the dotted lines would be a good entry point for the momentum in the U.S Dollar. But, rather, let’s get some
So if you’re looking for fundamental reasons to go long on the U.S Dollar it’s easy to name some basic but flawed assumptions to justify why the U.S Dollar should go even higher. [“long” means you’re expecting an asset to go higher in price. Bear means you’re expecting price to go down]. Now, momentum traders and possibly some institutions/funds would be happy to pursue this momentum, especially on a minor pull back such as you can see in the price above. A pullback with an apparent support zone marked by the dotted lines would be a good entry point for the continued momentum in the U.S Dollar. But let’s get some Perspective.
U.S Dollar Daily Chart Chart 2014-2016 | Perspective.
U.S Dollar Daily Chart October 2016
Please start making a habit of looking at longer term charts to get the bigger picture trends, resistances and supports. The above long term chart shows that the U.S Dollar made a double top which is bearish. Also, there is a bearish trend that has been continuing for the last 6 months. In the same way that Gold has been pushed below its support line to get the market on the wrong side before the next leg up, I believe the U.S Dollar has been pushed through its resistance to send the false signal that it’s safe to go long [fundamentally/economically I don’t by the breakout above that 6 month long trend line].
Additionally, you may recall the oversold indicator I showed in a previous post for Gold. Conversely, in the chart below it’s clear that the Dollar has now become overbought.
U.S Dollar is Overbought October 2016
Note that in a bull run, the RSI can remain overbought for extended periods of time [which means a degree of risk for my precious metals portfolio.] I don’t believe that the Dollar is in a bull market though. I expect a continuation of the downward trend from the last six months, even though on the short term chart earlier in the post, it appers as if the Dollar will continue its rally.
Gold Bull
The U.S is sitting on around 20 trillion Dollars worth of debt. Combine this with an economy which is stagnating and inflation that’s starting to rise. Throw into the mix an unemployment rate which is not appearing to be improving. This forecasts the next economic move to be another round of quantitative easing or money printing. With each dollar that gets printed, Gold becomes more valuable, Additionally, I expect that investors are going to become worried about the lack of economic growth and the apparent inability of central banks to control the situation.
So this is what the Merchant expects over the coming months.
I expect gold to move into the higher price platforms in the coming weeks and months.
If’ I’m wrong I will obviously change tactics to protect my capital. But I believe this is a pretty high probability trade given the yuugely oversold conditions in the Gold price.
That’s it for this post. Remember that even if you are handed the best shares and advice on a silver platter you will not be profitable unless you can think better. if you can’t think like a Merchant , if you don’t have self-control and can’t think logically, you will fail to make money, even if all the probabilities stacked in your favour.
Later this week I am going to provide a Merchant’s insight into the recent British Pound flash crash. There’s something interesting that I noticed that I’d like to share. Let’s just say the flash crash by the crazy computers with fat fingers is pretty conveniently timed.
I want to thank all of you who have reached out and thanked me for the work being done here. It really inspires me to know that so many of you are gaining value from these insights. Please remember to share these posts, charts and articles with links to help spread the word.
Additionally, the Patron will be entering his positions this week. Exciting times!
See you around the ASX