Is it just me or is anyone else tired of all this talk about Gold FOLLOWING the US$’s lead? Turn on the news and they’ll talk about how a falling US$ pushes Gold higher. Yes, this is true over the long-term. The two are inversely correlated. That being said, I think it is very important and interesting to analyze the times when that is not the case.
Like how about earlier this year when the US$ fell and Gold consolidated and didn’t breakout? We show that in the chart below. And the US$ chart shown is inverted. One can see that in the past six weeks, the US$ is only down marginally as it tries to find a bottom. Yet, Gold is soaring. Turn on the television and they’ll tell you the five cent decline in the Dollar index is what caused Gold to go up $15. Does this mean Gold can continue to run higher even if the US$ rallies?
These are the type of questions we should be looking at. We can figure out or estimate what percentage of Gold players are involved because of the Dollar. Personally, I think that percentage has decreased. I do think that a dollar bottom will have an impact on Gold, but not to the degree the Gartman’s and Guy Adami’s would have you believe. Say what you want about the US$’s impact on Gold but its clear that Gold is in a major bull market- it is rising against all currencies and all asset classes. That is the case because there isn’t a sufficient alternative. Ironically, problems in Europe, which eliminate the Euro as a reserve currency and in turn help the US$, actually bolster Gold’s role as the true reserve currency. Dollar induced sell-offs in precious metals will be an opportunity to accumulate and add to positions.