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Bullish Dollar is Good for Gold
The last time I looked at the Dollar Index was on September 2, 2011, and I made the statement: “The Dollar Index is making an attempt to close above the nearby key pivot level at 74.62. A weekly close above this resistance level would likely turn the trend from down to up.” Not only is the Dollar trading at 78.5 (~5% over the key pivot level), it is also above its simple 10 month moving average. This is bullish.
A simple strategy, utilizing monthly charts of the Dollar Index, is to buy the Dollar on a monthly close greater than its simple 10 month moving average. My sell signal is the presence of a negative divergence between price and an oscillator that measures price momentum or a close back below the simple 10 month moving average. Now the purpose of this study is not to derive a Dollar trading strategy or to show you how wonderful I am. The purpose is to define those times that the Dollar index is in an uptrend.
Since 1979, this strategy generated 22 trades, and as it turns out the trades were evenly distributed over the last 3 decades with about 7 trades occurring in the 1980?s, 1990?s and 2000?s. 68% of the trades were winners, and the average trade lasted 7 months. Such a strategy yielded 79 Dollar Index points while buy and hold netted negative 10. This strategy produced the following equity curve.
Figure 1. Equity Curve
This equity curve and strategy defines those times when we should expect
the Dollar Index to rise. A close over the simple 10 month moving
average is bullish for the Dollar Index, and as it turns out this is bullish for gold as well.
Figure 2 shows a weekly chart of gold (cash data). The price bars marked in red are those times when our Dollar model suggests an upward trend in the greenback.
Figure 2. Gold/ weekly
Over the last 10 years, gold bottoms when the Dollar Index embarks on an
uptrend. Despite what most investors believe, Dollar strength is good
for gold.
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I think that headline was supposed to read "Bullshit Dollar is Good for Gold".
Anyone every ponder if the Fed is selling gold and buying dollars? A summation chart of all the daily AU quotes for the last ten years truly makes that look like the case.
I usually like TT's work. But there's a first time for everything.
Correlation is one thing, causation is another. Did I miss a link to the cause of the gold/dollar linking? Maybe I'm just tired...
You found something that correlates to gold.
I was starting to think nothing did.
Yes,
I agree, that's when we get the DIPS.(the one's I hope most have taken advantage of).
IF we were in normal times I would disagree...........because a consistently HIGH dollar, keeps it's BOOT on the PM's.(20yrs worth).
This time, WILL be different.The dollar has two choices deflate(Bullish) or Crash.......................Long Term, both will be wildly bullish, the latter WAY too bullish.
As Peter Schiff states, the US Dollar is TRASH...................long term,for sure he is correct.
Anytime you can buy Platinum over a $100.00 less than Gold, you got a deal.
C-O-N-S-O-L-I-D-A-T-I-O-N.
When the dollar is rallying, the price of gold isn't falling as fast in foreign currencies. Chart gold in Canadian dollars, for instance, and the recent drop looks much tamer. This gold bull is driven by non-dollar holders, NOT dollar holders. If the dollar gets very strong and causes exchange rate pain, those folks will look to gold for safety.
Pointless analysis when you see a line that goes left to right in a parabolic pattern. Other than short-term consolidations after being over-bought, gold goes up regardless. Conclusion, hold your gold.