Clive Maund
The immediate outlook for the US dollar
Sun Jan 22, 2006 00:03
The immediate outlook for the US dollar
A couple of people have written to me wondering what effect the latest
Bin Laden video threat may have on the gold market.
By Clive Maund
January 20, 2006
HTTP://WWW.clivemaund.com
One of my favourite video clips is the one where Bin Laden and his
bespectacled Number 2, Zawahiri, are shown sauntering along in the
hills with the aid of sticks, and we are supposed to believe that this
pair of wandering eccentrics are somehow a grave threat to the United
States. The notion is laughable and ludicrous - yet millions of
gullible citizens believe it. Many readers may recall the absurd "Duct
Tape" episode, which was the cause of considerable mirth in other
countries. Millions of Americans rushed to their local DIY stores to
buy masking tape to tape up the gaps in their doors and windows after
a government warning of a possible chemical or germ warfare attack. It
just goes to show that you can get the majority of citizens to believe
anything or do anything. So another video of Bin Laden making threats
has been wheeled out and aired - so what? It won't make any real
difference to the gold market, apart from perhaps a short-term blip
due to the fact that so many supposedly intelligent people suck this
stuff up.
What gold and gold stock investors should right now be much more
concerned about is the immediate outlook for the US dollar. It is true
that gold's fortunes have to a considerable degree become decoupled
from the dollar in recent months, and we have paid homage to gold's
achievement by no longer including an assessment of the dollar in the
regular Gold Market updates (although it may later be included again),
but gold can never completely escape the shackles of the dollar in the
foreseeable future, for the obvious reason that it is priced in
dollars. Therefore, if the dollar rallies strongly, it will continue
to be a negative for gold.
Let's now take a look at a 1-year chart for the dollar index to see
how it's shaping up. As we can see there has been a substantial
reaction by the dollar since mid-November, and it is partly this that
has fuelled gold's strong rise. However, this decline has resulted in
it being quite deeply oversold and brought it down into a zone of
significant support, where it appears to be forming a potential small
base area. The reaction has also brought it back close to the still
rising 200-day moving average - normally a classic buy spot, as the
larger trend must be assumed to be up while this indicator continues
to rise. Thus, it looks like a significant rally by the dollar is on
the cards, and if it occurs, it can be expected to precipitate the
gold share correction written about yesterday. That said, the overall
dollar chart is weakening, with the November high not much above the
July high, and looking further ahead, the outlook is for a serious
dollar retreat.
To end on a positive note, the influence of China on the gold market
is far more interesting and significant than any of Bin Laden's
antics. The Chinese have an instinctive appreciation of gold as real
money that is admirable and indicates a basic common sense sadly
lacking elsewhere, and it extends from persons of the highest rank
right down to the man in the street. China is a fast growing economy
and is set to become a world power, with 1,400 million citizens whose
collective buying power will be mind-boggling. What does not denote so
much common sense on the part of the Chinese is the embarrassingly
large mountain of paper assets and IOU's accumulated over the years as
a result of trade deficits, especially with the United States. It is
like having an attic full of old newspapers - the thing to do is to
get rid of them, and that is what the Chinese are quietly doing, which
is why they are furtively buying hard assets - commodities -
especially gold, real estate and mines etc. It is hard to imagine
gold, whose value lies in scarcity, doing anything other than going up
against most world currencies, the supply of which is infinite,
although here we should end by pointing out that the US Federal
Reserve has redefined the definition of infinite.
Clive Maund
Clive.Maund@t-online.de
============================
WHAT'S MONEY?
http://www.apfn.org/apfn/money.htm
A couple of people have written to me wondering what effect the latest
Bin Laden video threat may have on the gold market.
By Clive Maund
January 20, 2006
HTTP://WWW.clivemaund.com
One of my favourite video clips is the one where Bin Laden and his
bespectacled Number 2, Zawahiri, are shown sauntering along in the
hills with the aid of sticks, and we are supposed to believe that this
pair of wandering eccentrics are somehow a grave threat to the United
States. The notion is laughable and ludicrous - yet millions of
gullible citizens believe it. Many readers may recall the absurd "Duct
Tape" episode, which was the cause of considerable mirth in other
countries. Millions of Americans rushed to their local DIY stores to
buy masking tape to tape up the gaps in their doors and windows after
a government warning of a possible chemical or germ warfare attack. It
just goes to show that you can get the majority of citizens to believe
anything or do anything. So another video of Bin Laden making threats
has been wheeled out and aired - so what? It won't make any real
difference to the gold market, apart from perhaps a short-term blip
due to the fact that so many supposedly intelligent people suck this
stuff up.
What gold and gold stock investors should right now be much more
concerned about is the immediate outlook for the US dollar. It is true
that gold's fortunes have to a considerable degree become decoupled
from the dollar in recent months, and we have paid homage to gold's
achievement by no longer including an assessment of the dollar in the
regular Gold Market updates (although it may later be included again),
but gold can never completely escape the shackles of the dollar in the
foreseeable future, for the obvious reason that it is priced in
dollars. Therefore, if the dollar rallies strongly, it will continue
to be a negative for gold.
Let's now take a look at a 1-year chart for the dollar index to see
how it's shaping up. As we can see there has been a substantial
reaction by the dollar since mid-November, and it is partly this that
has fuelled gold's strong rise. However, this decline has resulted in
it being quite deeply oversold and brought it down into a zone of
significant support, where it appears to be forming a potential small
base area. The reaction has also brought it back close to the still
rising 200-day moving average - normally a classic buy spot, as the
larger trend must be assumed to be up while this indicator continues
to rise. Thus, it looks like a significant rally by the dollar is on
the cards, and if it occurs, it can be expected to precipitate the
gold share correction written about yesterday. That said, the overall
dollar chart is weakening, with the November high not much above the
July high, and looking further ahead, the outlook is for a serious
dollar retreat.
To end on a positive note, the influence of China on the gold market
is far more interesting and significant than any of Bin Laden's
antics. The Chinese have an instinctive appreciation of gold as real
money that is admirable and indicates a basic common sense sadly
lacking elsewhere, and it extends from persons of the highest rank
right down to the man in the street. China is a fast growing economy
and is set to become a world power, with 1,400 million citizens whose
collective buying power will be mind-boggling. What does not denote so
much common sense on the part of the Chinese is the embarrassingly
large mountain of paper assets and IOU's accumulated over the years as
a result of trade deficits, especially with the United States. It is
like having an attic full of old newspapers - the thing to do is to
get rid of them, and that is what the Chinese are quietly doing, which
is why they are furtively buying hard assets - commodities -
especially gold, real estate and mines etc. It is hard to imagine
gold, whose value lies in scarcity, doing anything other than going up
against most world currencies, the supply of which is infinite,
although here we should end by pointing out that the US Federal
Reserve has redefined the definition of infinite.
Clive Maund
Clive.Maund@t-online.de
============================
WHAT'S MONEY?
http://www.apfn.org/apfn/money.htm
Main Page - Saturday, 01/21/06
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