Trends in the U.S. Dollar, Stocks and Gold
Today we have Chris Vermeulen “The Gold and Oil Guy” to tell us a bit about where the massive deficits will take the Dollar, Stocks and Gold. ~editor
Gold and Stocks Heading Higher with GDP Crashing
As most investors and traders are aware, the U.S. Federal government has run up significant deficits and the long term debt burden is becoming a drain on Gross Domestic Product. That being said, most economists are discussing the possibility of a major decline in the value of the U.S. Dollar going forward as inflationary monetary policy begins to strangle growth. While that view point may prove right over the long haul, in the short run most traders are not likely expecting the U.S. Dollar to rally.
The U.S. Dollar is expected to reach a multi-year cycle low in the near future. From the cyclical low, I expect the U.S. Dollar to regain a strong footing and work higher against the crowd. This is not to say that the U.S. Dollar will not eventually decline, but financial markets do not work that easily. Shorting the U.S. Dollar is a crowded trade and Mr. Market punishes crowded trades quite often by pushing prices the opposite of what the herd is expecting. Should the U.S. Dollar find a strong underlying bid, precious metals and domestic equities would feel the brunt force of such a move. While it remains to be seen if the U.S. Dollar rallies, if it does it will catch many traders and economists by surprise and the unwinding of the short dollar trade could unleash a wave of buying that we have not seen for quite some time.
Let’s take a look inside the market…
How to Trade the Holiday Grind
By Chris Vermeulen, The Gold and Oil Guy
It’s that time again when volume dries up and prices rise into the new year. A lot of individuals are scrambling to prepare for the holidays, even though we had a year to prepare. The big money has already done most of their year end shuffling and will be taking it easy until January.
The market is overbought and sentiment readings are at extreme levels which in the past have been the start of large sell offs and even bear markets. While I am keeping a close eye for a top, there is not much we can do but stay long stocks and commodities until the market tips its hand and distribution selling is in control. The U.S. federal government is the only wild card going into year end that should be on traders’ radars. They have been doing a great job boosting prices in the equities and commodities market, but can they continue to hold things up when the big money and the proverbial herd start unloading positions in 2011? Continue reading
You’ll Buy Gold Now and Like It!
I get this question a lot: “Should I buy gold now, or wait for a pullback?”
It’s a valid question. For nearly two years, gold hasn’t had a serious decline. There have been pullbacks, of course, but nothing assumption-challenging. In fact, since October 2008, gold’s largest price drop is 10.6% (based on London PM fix prices), and yet the average of all declines since 2001 is 13% (of those greater than 5%). The biggest pullback we’ve seen this summer is 8.2%. Technically the summer’s not over, but I’ll admit I’m surprised we haven’t had a better buying opportunity.
So, is now the time to buy? It depends on your honest answer to another question: “Do you own enough gold?” By “enough” I mean an amount that lends meaningful protection on your assets. By ”meaningful” I mean that no matter what happens next – another financial blow-up, accelerating inflation, crushing deflation, war, a plummeting dollar, more reckless government spending – you won’t worry about your investments. Continue reading
Markets Appear Ripe for a Sustainable Bullish Turn
Early September is very important for the financial markets; especially for the bulls. Numerous elements are in place for a rally to take hold now. The markets have been weak and the bears have been in control. If the bulls cannot make a stand soon, it will be a bad sign for risk assets. The good news for the bulls is several factors, across numerous markets and asset classes, are pointing to a possible rally in risk assets:
- Bearish sentiment is high at the moment. Sentiment, especially as it approaches extremes, can serve as a contrary indicator.
- The Fed has signaled they are willing to print more money if needed. Right, wrong, or indifferent, the markets are anticipating more quantitative easing from the Fed. The Fed’s next meeting is only three weeks away. Markets look forward. A rally in risk assets for a few weeks is not out of the question.
What are you really selling or buying in the currency market?
The short answer is nothing. The retail FX market is purely a speculative market. No physical exchange of currencies ever takes place. All trades exist simply as computer entries and are netted out depending on market price. For dollar-denominated accounts, all profits or losses are calculated in dollars and recorded as such on the trader’s account.
The primary reason the FX market exists is to facilitate the exchange of one currency into another for multinational corporations who need to trade currencies continually (for example, for payroll, payment for costs of goods and services from foreign vendors, and merger and acquisition activity). However, these day-to-day corporate needs comprise only about 20% of the market volume. Fully 80% of trades in the currency market are speculative in nature, put on by large financial institutions, multi-billion dollar hedge funds and even individuals who want to express their opinions on the economic and geopolitical events of the day.
Meaning of Trading in Pairs
Because currencies always trade in pairs, when a trader makes a trade he or she is always long one currency and short the other. For example, if a trader sells one standard lot (equivalent to 100,000 units) of EUR/USD, she would, in essence, have exchanged euros for dollars and would now be short euro and long dollars. To better understand this dynamic, let’s use a concrete example. If you went into an electronics store and purchased a computer for $1,000, what would you be doing? You would be exchanging your dollars for a computer. You would basically be short $1,000 and long 1 computer. The store would be long $1,000 but now short 1 computer in its inventory. The exact same principle applies to the FX market, except that no physical exchange takes place. While all transactions are simply computer entries, the consequences are no less real.
Great Returns in Currency Trading
The opportunities for unmatched returns and investment protection in the brave new world of foreign currency investing are second to none. In Foreign Currency Trading, financial executives Russell Wasendorf, Sr., and Russell Wasendorf, Jr., describe foreign currency trading in plain terms, and help you understand the risks, benefits, and operational requirements that you will need to take advantage of this market’s tremendous potential. Look to Foreign Currency Trading for clear explanations on the mechanics of foreign currency trading, in-depth discussion of all pertinent foreign exchange rules and regulations, and a comprehensive glossary with literally hundreds of terms essential to forex trading. With formerly imposing currency trading restrictions having been struck down in recent court rulings, the world of foreign currency trading is an exciting and rapidly-expanding field.
Global Gold Index
April 7, 2010
At Financial Trend Forecaster we are all about the trend. Over the last ten years there has been several big trends including the rise of gold and the fall of the dollar.
As the value of the dollar dropped against other currencies, I often wondered if gold was actually appreciating or if it was just that the dollar was falling. It is quite possible for the price of gold to rise in pace with the fall of the dollar but stay steady in comparison to other currencies. So the question arises “What would happen if the Dollar starts rising?”.
In this article, Adrian Ash of BullionVault answers that very question and shows us a very interesting chart of the price of gold based on a basket of currencies rather than just against the dollar. ~ editor
Global Gold Index – Higher Again
by Adrian Ash
The world’s money has lost almost 75% of its value against gold in the last 10 years…
We’ve SAID IT BEFORE, but we’ll say it again.
The bull market in gold starting 10 years ago is about much more than the Dollar – a fact that investors and savers worldwide might want to consider in 2010 if the US currency continues to rally. Continue reading
Cash on the Sidelines Myth
Myth — Cash On The Sidelines Is Bullish For Stocks
March 15, 2010
by Susan Walker
“Cash on the sidelines is bullish for stocks.” Have you ever heard some stock market pundit utter these words? Have you ever wondered if the statement were true? Read this item from the latest issue of The Elliott Wave Financial Forecast, and you’ll wonder no more: Continue reading
Death of the Dollar?
Editor’s Note:
The following article is based on analysis from Robert Prechter’s Elliott Wave Theorist. For more detailed analysis from Robert Prechter, you can download the Free 75-page “Independent Investor” eBook from Elliott Wave International.
Death of the Dollar, Again:
Before You Mourn, See This Chart
By Nico Isaac
If you want the latest news on the U.S. Dollar Index, try a search under its new ticker symbol, RIP. — as in, “rest in peace.” Let the record show: In the early morning hours of Tuesday, October 6, the mainstream financial community officially declared “The Demise of the Dollar” (The Independent).
The “coroner’s report” cites these details as the causes of death:
An alleged (and later denied) secret meeting among leaders of certain Arab States, China, Russia, and France which aimed for the immediate discontinuation of oil trading in U.S. dollars.
And, an open statement from one senior United Nations official that proposed the dollar be replaced as the world’s reserve currency.
In the words of a recent Washington Post story: “The growing international chorus wants the dollar replaced… a move that would end the greenback’s six-decades of global dominance.”
And with that, the line between negative sentiment — AND — “EXTREME” negative sentiment was crossed. It occurs when the beliefs about a market lean so far over in one direction, that the boat investors are sitting in is about to tip over… Just like the last time.
Case in point: Spring 2008. The U.S. dollar stood at an all-time record low against the euro after plunging more than 40% in value. And, according to the usual experts, the greenback was “dead”-set to meet its maker. On this, these news items from early 2008 say plenty:
“The dollar is a terribly flawed currency and its days are numbered.” (Wall Street Journal quote)
“It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the world’s reserve currency.” (George Soros at the World Economic Forum)
“Greenback is losing Global Appeal… the ‘Almighty’ Dollar is Gone.” (Associated Press)
YET — from its March 2008 bottom, the U.S. dollar came back to life with a vengeance, soaring in a one-year long winning streak to multi-year highs. In the most current Elliott Wave Theorist (published September 15, 2009), Bob Prechter presents the following close-up of the Dollar Index since that trend-turning bottom. (some Elliott wave labels have been removed for this publication)
At a measly 6% bulls, the bearish dollar boat tipped over. The situation today is even more remarkable: The percentage of bulls is lower, at 3-4%, while the dollar’s value is higher than the March 2008 level.
It’s crucial to understand that markets don’t necessarily respond to sentiment extremes immediately. But, such extremes do indicate exhaustion of the trend — which is usually the opposite of what the mainstream expects.
For more information, download Robert Prechter’s free Independent Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial market assumptions.
From Elliottwave International’s Forex Focus:
U.S. Dollar: Kiss Goodbye or Reversal at Hand?
It may seem extreme, but the October 12 headline on DrudgeReport.com (one of the world’s most popular news websites) “Kiss the Dollar Goodbye,” complete with a picture of a smooching President Obama, is a fair reflection of the sentiment toward the buck.
Based on a recent poll, bullishness towards the U.S. dollar is still low (17%) and has been as low as 3% on previous occasions. This reminds me of the sentiment towards crude oil in December 1998, when it traded just above $10/barrel. At that time prices had already fallen by half, and the almost universal opinion was that oil would go below $10/barrel. Price had to drop only 36 cents to get there — but it never happened.
The headline above plainly states what many business articles are saying. There are also rumors that the dollar will be replaced as the pricing currency — another example of extreme bearish sentiment. We’ve seen similar rumors in the past when negative sentiment towards the dollar would reach an extreme: in late 2004, for example.
All this bearishness continues to fit the Elliott wave pattern we see in the U.S. Dollar Index charts: Potentially completed five waves down since March 2009.
Elliott Wave Dollar
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Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.
The Bounce is Aging, but the Depression is Young
By Bob Prechter
The following is an excerpt from Robert Prechter’s Elliott Wave Theorist. Elliott Wave International is currently offering Bob’s recent Elliott Wave Theorist, free.
On February 23, EWT called for the S&P to bottom in the 600s and then begin a sharp rally, the biggest since the 2007 high. The S&P bottomed at 667 on March 6. Then the stock market and commodities went almost straight up for three months as the dollar fell. Continue reading
