Betting against crowd sentiment is usually a reliable trading method. Which is why I’ve expressed some reservations about the incessant trashing of the dollar.
Not that I don’t agree with the fundamental analysis behind it. The dollar, like all currencies, is toast if central banks around the world embark on a massive reflationary scheme, such as looks to be in the works. But…and this is the million dollar but…because the ultimate direction of a policy is clear, it does not mean that the proximate (near-term) developments by which that policy unfolds are going to be unidirectional.
Meaning, just ‘cos the buck’s going to hell doesn’t mean it’s going to hell in a straight line.
Things zig. And they zag. That’s the way the US Government operates and it’s also the way nature does.
There are no straight lines in nature. They only look straight because we’re time-and-space-bound creatures.
Everything moves in curves…and cycles….and waves…..
A wave up is followed by one down. You can’t always tell the size or the timing but you can tell the sequence.
So when the dollar went through 72 on the most popular index of the dollar (it was over 120 at it’s height in the 1990s), I waited things out. Since then, the dollar – in fits and starts – has pushed upward with considerable strength (in light of its rotten fundamentals).
Likewise, despite the gold community rah-rahing about precious metals prices, I expressed some doubts about its immediate prospects and in a Feb. 23 post (Gold Double Top?) cited a post suggesting that gold was putting in a double-top in the mid-term (for a couple of weeks to months) .
The thrust upward just didn’t seem as strong as everyone said it was.
My proprietary trading signal?
A complex multidimensional formula based on fractal theory that took me several years of advanced training in mass psycho-dynamics, linguistic structural analysis, and advanced organizational observation theory, all of which told me:
WJCPG-IT(/3)5
When Jim Cramer Pumps Gold – It’s Time To Take Five
(Check out this video of Cramer saying not to worry about Bear Stearns).
And, wouldn’t you know, this morning I see that the spot price has fallen below $900….
(And it’s closed below $900…)
More people and institutions have added gold bullion to their portfolios since the onset of major economic troubles however that has not had the expected effect on the market price of gold. While there are many reasons for this, the most pivotal, and least acknowledged, is the fact that gold sales (particularly in jewellery) have fallen dramatically in the three major markets: India, Turkey and the Middle East. Nevertheless, gold still remains a nice hedge against economic calamity.
Yes, it does…
But there is no jewelry demand at this prices level and since Indian demand is a major chunk of world demand, I am not surprised.
The other problem is that on any movement of the equity market up, money flows out of the ETF’s which is bought by many people who aren’t really keen on gold but are only holding it for the hedge.
Those people will likely move into stocks or oil or commodities the minute the market looks up. And technically, the market might be due for a bounce soon.
Of course, nothing is very predictable these days and the gold market is very manipulated.
Thats a good point. I don’t think most investors really like gold but reluctantly buy it as a hedge. The problems the US is facing with socialism and the economic meltdown is a worldwide problem. People fled recently to the dollar because its the prettiest horse at the glue factory in the short term. At this point there are so many factors and so much uncertainty its difficult to know what will happen in the short term. In the long term, Marc Faber recently said that the US could either default on debt or go into hyperinflation. So I think the only thing to do as an investor/trader is ride the waves as they go up and down and have your protective stops in place.
Spoken like a trader