Gold vs the Dollar

Posted by downtowntrader | 4/12/2006 09:41:00 PM | 0 comments »

There is a school of thought out there that correlates rising commodity prices to the increased supply of global paper currencies. As the world keeps printing paper, the underlying currency is devalued. There is no way to print more gold of course, therefore the only true currency (gold,etc) is being scooped up. The issue right now, is the world is just starting to increase their own rates as the US is supposedly wrapping up it's own rate hikes. So, if Japan begins a string of rate increases and China decided to strengthen their currency, then the US will have an issue. The dollar will weaken unless the Fed keeps raising rates. But if the Fed raises too much, then it could derail the economy. So, the real issue for the fed, is not fighting inflation, but keeping the falling dollar propped for political reasons without bringing down too many things. If you look at the dollar as it related to gold, you will see that gold rises when the dollar falls. So what is the rise in gold telling us? That is the million dollar question.

Here is a chart showing the dollar. The dollar is at a crossroads here needing to hold the blue trendline in order to maek another attempt at the red horizontal trendline.
Here is a chart of the ten year. Clearly, it has broken out.
Here is a chart showing the relationship between the dollar and gold over the past three years. It's pretty clear that gold and the dollar have an inverse relationship and the dollar is currently falling.

Here is a chart of the SP500. It looks like it is headed lower, but already stochastics and cci are oversold.

Here is the Nasdaq chart. Finding support near here but MACD just crossed over.

I have been thinking oil would pull back around here, and the OIH etf looks like it is expecting the same thing. OIH reached it's near term target and looks like it will pull back a little. I would expect that the next pivot point will be a great entry leading up to hurricane season.

No individual stocks tonight. Good Luck,