The Real Reason The Dollar Is Rallying With Gold

Elliot Wave Technical Analyst & author @ Elliott Wave Trader
July 4, 2016

I have heard for years that gold trades inversely to the US Dollar.  It is a maxim which is universally accepted.  However, this expectation has been turned on its head of late, and not many are discussing this in the open.  It’s almost like it is taboo to speak about the dollar and the metals trading in the same direction.

But, for those that remember, this occurred before.  Back in November of 2014, both the dollar and gold rallied over 10% at the same time.  It was a head scratcher for most then, as it is right now . . .that is unless you were expecting it.  In fact, most recently I even penned an article suggesting that you beware of changing dynamics in the markets: http://news.gold-eagle.com/article/gold-paradigm-shift-are-you-prepared/272

There is another fallacy which I have pointed out in the past as well which has universal acceptance.  Most people believe that quantitative easing has had a negative effect upon the dollar.  And, as we were calling for a multi-year rally for the dollar back in July of 2011, most were calling for a dollar crash based upon QE.  Well, for those of you that have not even bothered to look at the chart, the dollar has been in a bull market since 2008.  Yes, I know, it is contrary to what everyone believes about the dollar, but the dollar is much higher now than when we began quantitative easing.

You see, much of what is believed about metals and the dollar is often proven to be false, but most do not bother to open their eyes to the truth.  Rather, they maintain their old biases, which often leads them to seeing red, and mostly in their accounts. 

Everyone needs to have a reason as to why the market does something.  It makes them feel like they have some modicum of control when they can “know” why something moved.  But, as with any amount of control one believes they have in life, it is an illusion.

So, for those of you that want to believe in fundamentals – which have not been accurate for years in metals and the dollar – then here is something for you to chew on.  If you really need to believe that the dollar and the metals need to have a reason they rally together, then consider that maybe the market believes that we are going back to the gold standard. 

While I don’t believe this reason, nor do I care for any reason, if there is a market belief that we will return to the gold standard, it could be one plausible reason they both rally together.  Again, I don’t care for, nor believe in, reasons as to why a market moves.  You see, I have pointed out in the past how the exact same “reasons” have supposedly moved gold in exact opposite directions.  So personally, I suggest you either learn how markets really move, or you will have to make up reasons like everyone else seems to do after the fact.   I wish you luck in that endeavor.

 

Avi Gilburt is a widely followed Elliott Wave technical analyst and author of ElliottWaveTrader.net, a live Trading Room featuring his intraday market analysis (including emini S&P500, metals, oil, USD & VXX), interactive member-analyst forum, and detailed library of Elliott Wave education. You can contact Avi at: [email protected].


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