Could Gold & The US Dollar Rise in Tandem?

March 6, 2013
 

Featured is the weekly gold chart, with the US dollar at the top.  Five times during the past five years did gold and the US dollar rise in tandem.  The sixth time could happen any day.  In 1973 and in 2005, gold and the mining stocks rose along with the U.S. dollar from April to December.

“The study of money, above all other fields in economics, is one in which complexity is used to disguise the truth, or to evade truth, NOT to reveal it.”

…..John K. Galbraith.

 

This chart courtesy Federal Reserve Bank of St. Louis shows U.S. total debt has risen above the 100% mark, as a percentage of GDP.  This debt will never be repaid.  It is most likely going to be inflated away.  Gold and silver will benefit.

“When national debts have once accumulated to a certain degree, there is scarce, I believe a single instance of their having been fairly and completely paid.  The liberation of the public revenue if it has ever been brought about at all, has always been brought about by a bankruptcy, sometimes by an avowed one but always by a real one, though frequently by a pretended payment.” 

……Adam Smith (The Wealth of Nations – 1776).

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This chart courtesy U.S. Census Bureau and Office of Management and Budget, shows the disconnect between Median Household Income and Federal Government spending.

“Of all contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.” 

Daniel Webster

This chart courtesy Hindecapital.com shows the upward trend in the money supply of the five major central banks.

This chart courtesy Goldmoney.com shows the current long vs short positions among hedge funds.  Here are the comments that came with the chart:  Managed money (ie hedge funds) is short of 47,357 gold contracts, a record, and can be seen as the red line in the chart below. There are 45 funds short – well over twice the average and very close to the record of 48. Furthermore, their net long position (green line) is close to all-time lows. Interestingly, the last time managed funds held record shorts was in May 2012, when gold bottomed out at $1,540 before rallying to the $1,800 October high. On that basis, managed funds in gold are as good a contrary indicator as you can get.   

The bullion banks, which control prices in futures markets, are reducing their shorts and have cut their net short position in gold by 60,000 contracts – the lion’s share of the reduction being the counterpart of the managed money position.

This chart courtesy Businessinsider.com shows the amount of gold as a percentage of the total assets owned by hedge funds; is at the lowest point in four years.  From a contrarian viewpoint this is bullish news. 

This chart courtesy U.S. Global investors and Bloomberg shows a similar oversold indicator.  Based on a change in standard deviation, this index is currently at a reading similar to the condition in 2008 – 2009, just before a big run-up in the price of gold.

This chart courtesy US-Funds.com, Thompson Reuters, GFMS, WGC., shows that while central banks are trying to hold the gold price down, they are also buying gold while the price is low.

 

This chart courtesy Zerohedge.com shows the reason why the manipulators in gold gave up (at least for now) on Wednesday Feb 20th.  As this chart shows, the low gold price caused a sharp increase in demand at the US Mint.  This demand was a reflection of gold demand worldwide.

“You have a choice between the natural stability of gold and the honesty and intelligence of the members of government. And with all due respect for those gentlemen, I advise you, as long as the capitalist system lasts, vote for gold."

….George Bernard Shaw.

This chart is also courtesy Zerohedge.com.  Just like the chart above it, the demand for silver rose sharply as investment demand grew as a direct mirror image to the drop in price.   The ‘anti-silver cartel’ had to pull back or face being over-run by demand.

This chart courtesy Erste Group Research shows the correlation between GDP in India (red) and China (blue), along with the gold price in yellow.  In view of the fact that the red and blue lines are continuing to rise, the expectation is that gold will also keep on rising.

Featured is the HUI index of gold and silver producers.  Since the bull market began, twice on this weekly chart did the RSI (top of chart) dip below ‘30’.  It did not stay there long, and in both cases the dip in the RSI was followed by a multi-year rise. 

“The greatest profits will be made by the long-term investor without margin, who is there when gold goes to four figures.  Trading is a game won by a few, but lied about by many.” 

….James Sinclair.

This chart courtesy Zerohedge.com shows the Bank of Canada is in lockstep with the major central banks as far as QE is concerned.

Historically all currencies, once decoupled from gold backing, eventually became worthless.  There are no exceptions.  The Bank of Canada has since 1980 sold 98% of its gold holdings and ‘invested’ the proceeds in U.S. dollar denominated bills and bonds, which are not backed by gold.  Not very bright!

Conclusion

It is now been 78 weeks since gold reached a new all-time high price.  The correction of 2006 took 71 weeks.  The correction in 2008 took 77 weeks. 

Quoting King Solomon: ” That which has been is what will be.  That which is done is what will be done, and there is nothing new under the sun.”  940 BC.  Ecclesiastes 1:9.

Quoting W.D. Gann:  “The most important thing of all is the Time Factor, which I use in making up my annual forecasts.  When time is up – price will follow”

 


DISCLAIMER: Please do your own due diligence. Peter Degraaf is not responsible for your trading decisions.

Peter Degraaf is an online stocks and bullion investor with over 50 years of investing experience. He produces a daily market letter for his many subscribers. For a sample copy send him an E-mail atitiswell@cogeco.net or visit his website www.pdegraaf.com

Peter Degraaf became interested in silver and gold when the Governments of the US and Canada proceeded to remove silver coinage from circulation in the mid 1960s.

He noticed the effect of Gresham’s law:  “Bad money drives out good.” He became a coin dealer, attending coin shows all over The US and Canada. In 2001 he semi-retired from coin sales and concentrated on investing in precious metals. He mastered the art of technical analysis and applies this to his investments. In 2001 he started publishing a daily and weekly market report.  His website is at http://www.pdegraaf.com/.

Gold is still being mined and refined at the rate of almost 2,600 tonnes per year.