Euro vs. Dollar & Gold Monitor

August 2008 Updates & Forecasts

August 27, 2008 Update:

Gold, Silver, Oil & Dollar:

Everything that fell or rose so dramatically since the middle of last month seems to be either bottoming or topping out at this point, at least on the charts.

Gold has hit its lows below the $800 level and is consolidating above it.

The same is the case with silver, which has dipped into the $13 range and is now consolidating there.

Oil has hit its bottom near $110/bbl, and the dollar has topped out just above the 77 mark on its index, still three full points away from its previous all-time low of 80.

All of this could simply be a result of Tropical Storm/Hurricane- to-be "Gustav" threatening US oil facilities in the Gulf of Mexico, of course - except that the ECB's Axel Weber has now come out and cut off any speculation of a soon-to-come rate cut by the ECB as "premature". The euro promptly gained a half percent, the dollar fell, and gold had a tiny bump of $2.10 for the day.

That will change, probably this coming month.

There is a creeping catastrophe for the US credit markets working its way through the US legal system. It is still in its nascent stages, although it has received some attention from major press organs like Bloomberg. It will be one of the topics in the upcoming September issue of the Monitor.

Until then, suffice it to say that the US credit industry and those who have bought into its mortgage-related securities "products" will wish they were back in early March of this year when the Fed still had enough clout to avert the Bear Stearns disaster.

Gold Stocks:

The XAU is now back where it was in January of 2006, more than two and a half years ago, while gold was thrown back only to where it was about ten months ago.

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August 17, 2008 Update:

The Dollar:

The dollar appears to have had a 'true breakout' on the chart, and the reasons for that are many.

First of all, oil's fall from its $147/bbl peak on July 14th. Second of all, Trichet's mea culpa and apparent retracing of his July steps toward monetary tightening, although so far this still came in verbal form, only. Third, the global recession's sudden bite, which has shown itself in particularly harsh form in the euro-zone's driving economies, namely Germany, France, and Italy.

The latter is of course the reason why Trichet is suddenly pulling in his horns, and that is what has allowed the dollar to intensify its rebound rally.

At first, it was all just oil. Dropping Oil improved the dollar's balance of trade picture by reducing overall import expenses. Previously mounting US demand destruction helped tip the scales and helped to broaden the downturn. The US is by far the target="_new">biggest oil and energy consumer in the world, so this had a disproportionate effect.

As oil started dropping the and dollar began rising, it became clear that there will be mounting pressure on other leading central banks to lower their interest rates to soften and reverse their own countries' economic declines. The dollar is seen as already having done its rate cutting well in advance of the others, so the expectation is that few if any will follow while the others will seriously start cutting, which of course decreases the rate differential and therefore makes the dollar look less ugly in comparison.

In addition, traders are looking at recent economic numbers from the US which were "less bad" than expected. All of this combined has a tendency to move traders who only look at the short term to favor the dollar, which has already done a lot of falling, over the other currencies which did a lot of rising late last year and during the first half of this year.

The problem is that there are a lot of other shoes to drop in the US financial system. As they continue their descent, the first few thumps will not disturb the current dollar mania very much, but their persistent knocking at the door will be heard louder and louder as it continues.

The US economy and financial system are by no means out of the woods, yet. The marking to market of mortgage-infested CDO's hasn't even begun yet. My expectation that Australia's NAB's action of fully discounting their CDO exposure would turn into a trend here in the US as well has not played itself out. I underestimated the concerted effort of US news outlets to completely smother that story - but it will eventually happen. It has to.

When it does, watch the dollar reversing again. There is no way I can put a time frame on that occurrence, however.

Gold & Silver:

This does by no means make a precious metal recovery impossible. Gold rose right alongside the dollar during most of 2005. The famous inverse relationship is not cast in stone.

The biggest factor in gold/silver's coming recovery is the worldwide shortage that is beginning to show itself in the face of sharply falling prices. (As an experiment, I would be interested in hearing your story trying to find gold or silver to buy in small quantities at your local dealers!)

As noted above, international CB's are on the verge of cutting their interest rates, which is done my increasing the money supply via OMO or "open market operations", buying government debt from the public to inject cash. This is offsetting some of the credit (i.e., money) destruction resulting from the lending collapse and default cycle we are in. Any serious deflation is not going to happen until long term rates start climbing, forcing their hands to start raising rates again. That's when the money-lending/creation system will reach its systemic limits.

In the meantime, the public fear of hyperinflation, as witnessed by the retail gold and silver rushes occurring all over the world is palpable. It simply belies rising long term treasury rates falling/prices rising as an indicator of what investors are thinking - which brings us to our next topic:

The Stocks/Bonds Interplay:

The fractional reserve banking and paper investing system is founded on the traditional see-saw relationship between stocks and bonds. When money flows out of stocks, mainstream investors tend to put it in stocks, and vice versa. This is kind of the "two-party system of the financial world." It guarantees that no matter what investors do, they stay within the system designed for them. Like in the political realm, it is designed to make sure the cattle don;t leave the pasture.

Currently, we are witnessing a rebounding of stocks (however lame) coupled with a rebounding in treasuries prices. Where is that money coming from? If it doesn't flow from one compartment to the other but into both, there must be a source.

Is it money coming from institutional investors like mutual fund managers selling gold and silver contracts? Maybe. If it is, is this a good time to be investing in stocks when credit is tight and people stop buying and start saving? Don't think so. Is it a good time for these fund managers to buy bonds while price inflation conflagrates all over the world and here in the US? Don;t think so.

So, what's up?

The fraudulent nature of the US and world monetary systems s coming to the fore. That's what's up.

The Dow:

The Dow has been repelled by its former floor at 11,7500. That figure was exceeded briefly on August 11th, but could not be maintained.

The Dow's recent 'rally' doesn;t look like much, really. The reason why: Take a look at the much broader NYSE chart, which has gone exactly nowhere during that time:

The S&P looks more like the Do in that it has seen a bit of a rally since il began to drop, but it has its won resistance level to deal with, which it isn't likely to succeed at. Only the Nasdaq has been in a true bear-rally mode of late.

All in all, at this juncture, looking at charts is pretty much useless, as the precious metals shortage and the fact that money is supposedly flowing into both the stocks and treasuries at the same time (while massive inflation is eating away at profits and consumers are running out of spending and saving cash while unemployment rises across the nation) reveals the fraud of mainstream asset price discovery mechanisms.

Buy whatever physical metal you can get your hands on, and pile the rest into GoldMoney. It will pay off handsomely.

See you next week.

August 11, 2008 Update:

8-12-08 Supplement:

CORRECTION!

A subscriber brought to my attention that the dollar index chart below turned out completely differently from what Stockcharts displayed to me when I looked at it yesterday. Here is today's chart:

The chart I saw yesterday was what you see below, except that the candle was "empty", i.e., only outlined in red. and I could not get it to translate into Stockchart's "Annotate" feature. After trying several times and getting the same result, I filled it in by hand, never thinking twice to check it afterwards. Naturally, that voids whatever analysis I wrote below as it pertains to the return to the 74 point level on the chart. (End of Correction)

The Dollar's Fake-Out Breakout:

The dollar's overshoot past the 74 point mark on the USD Index reversed itself today, with the Russian ruble gaining and the dollar losing as a result of Russia's declaration of its intent to halt further forays into Georgian territory.

If this level holds, my June forecast of a high of 74 and a low of 71 in the dollar's trading range will remain in force - in spite of the incredible support the oil price reversal has lent the dollar since July 14th.

The War for Oil:

Read Michel Chossoudovksy's analysis on the crisis brewing in Georgia. It looks like the insane occupants of our white house and Congress are planning/acquiescing to a ploy to dominate the world's entire oil supply, with Israel being the focal point of it all (with the capped crude in Prudhoe Bay and the oil sands located on both American subcontinents, control of the middle east and Caspian regions will give them world energy dominance - or so these deluded psychopaths think).

The pendulum is beginning to shift back against the dollar before the Iran blockade is even complete, and before it has elicited a single response from Iran -- and Russia, and China!

The world is changing before our eyes, way faster than any of us can be comfortable with. It is of absolutely crucial importance that we do not succumb to the fear that normally arises as a result of that change. Fear is what the movers and shakers behind the scenes use to neutralize our thinking - and our thinking is what makes all the difference in the world.

Gold & Silver:

Welcome to the world of total make-believe.

Congress has never passed H. Con Res. 362, whoch ordered George the Bush to blockade Iran;
The US/EU Armada preparing to impose that blockade is not actually on the way of doing so;
Russia is the aggressor in the South Ossetia conflict in the country of Georgia, and
Everything is fina and dandy in the stock markets. Investors have rediscovered their love for all paper assets, are flooding back into US stocks and bonds at the same time, and are leaving 'pessimistic' investments like gold and silver behind for good, looking forward to better days.

If you ever wanted confirmation that the news that reaches your eyes and ears is completely controlled, just try and do a news search on H. Con. Res. 362 and see how many major press organs have reported on it.

Zilch.

Likewise, take a look at how the US press is now spinning Russia as the aggressor in Georgia's attack on its virtually unarmed Ossetian breakaway region. There are/were Russian "peacekeeping" troops there, but the tiny region itself is only about 40 by 40 miles postage stamp on the map of Georgia without any military of its own worth mentioning. Georgia, however is rife with US military advisers and special forces troops.

What happened today to gold and silver is just more of the same. The press and the markets are run by the same people, corporations, and "interest groups." What you are witnessing is an utter show of manipulatory muscle just prior to the erection of the naval blockade against Iran. Gold dropped into the mid $820's - an insanity that is in no way justified by another $3+ drop in oil today, engineered courtesy of the same powers that bring you the nightly news.

Oil:

The recent drop in oil has exceeded anyones expectations and continues to do so, just as the previous rise in oil has exceeded anything anyone could have imagined just from reading the news and performing economic analysis alone.

Oil's chart is about the smash through is next support line at $110/bbl, which happens to coincide with the point where it will plummet through its red 200-DMA line. The next stop will be $100. You can pretty much figure where gold will go when oil drops down that far.

HOWEVER:

As noted in the last update and Monitor issue, the war with Iran will likely start before then or shortly afterward - and everything will go in reverse, at least if there is any sanity left to markets.

One thing is for certain: The US economy did not suddenly make a miracle recovery, and the credit crisis di not suddenly dissolve into nothing.

Here is a little preview, by the way, of what is in store for Americans and people around the world who may decide to "take it to the street" and protest against their governments continuing to foment World War III.

What you are seeing is Georgian riot police smashing down unarmed civilians in the Georgian capital of Tsibilisi in November of last year - with US "high-tech" anti-riot and crowd control equipment.

We, you and I, are responsible for having allowed our governments to get out for hand this far. Our lack of vigilance is now returning to us like a boomerang.

Do we know how to catch it, or will it knock us silly?

Oil has been dropped this far as a "safety cushion" for the coming rise when Iran begins to fight back.

August 3, 2008 Update:

Gold vs. Dollar:

As far as their respective one-year trends go, gold and the dollar are exact mirror images. Gold's trend is of course up, but it also manages to stay above its red 200-day moving average, by and large:

... while the dollar does the exact opposite:

The difference is that gold has formed a big head-and-shoulders pattern with its "head" in mid-March, while the dollar did not form a reverse H&S pattern. Also, the dollar has not even touched its 200-DMA from below while gold touched its own 200-DMA when it hit $850 in May. This indicates that the dollar's downtrend is more powerful than gold's uptrend.

If that sounds confusing, look at it this way: It means that gold has a certain amount of resistance going up (from official sources) while the dollar has less help propping it up from the same sources. In other words, the official trend, over the longer term, is to let the dollar fall relative to gold. There is less official support for the dollar than there is resistance to gold.

However, over the very short term (i.e., next week or so), gold is in a precarious position. It currently sits right atop its blue 50-DMA (as of Thursday) and is in the process of breaking below that on Friday. Next week could be dangerous for gold in the short term. The Dow isn't complying very well with efforts to prop it up. If it suffers next week, so will gold. If the Dow shoots up a bit, gold will be allowed to go along for the ride.

We are right now near the end of gold's traditional yearly doldrums time, so whatever happens during this week will not last.

Monday Update:

The above was written yesterday. This morning, gold dropped another $13 or so while the Dow - guess what - dropped as well.

Givent he expected weakness in stocks, gold is under official pressure for the next few weeks. Today it has already broken below the $900.00 level, and there is a weakish-looking head and shoulders pattern forming.

That drop today took gold already past the rising blue trendline, almost down to the 200-DMA. It can easily drop down to the $880-$870 level this week if stocks continue on downward.

Best case scenario would be another test and rebound from the $850 level. I say "best case" because that would make the coming up-leg the most powerful up-leg seen since 1980.I do not expect gold to breach the $850 level, and even if it does, all fundamentals are gold-bullish, so there is no reason to expect a really big collapse.

Gold Stocks:

The HUI has developed a super-broad, almost one-year H&S pattern around the already existing one that formed during January-

If the situation was reversed and gold's chart looked like this, I would sound the alarm bells right now - but it isn't gold. Gold is the driver, and the stocks are the passengers. It is very possible for the HUI to reach its August '07 level near 300 during this coming week or two, but gold will pick up soon and the stocks are bound to receive support from that.

The XAU has a far less pronounced H&S pattern over the same period. There i sno need to show it here.

The important thing is to not panic right now. If you are in gold stocks, hang on. Don't go into panic mode. Selling now and realizing the losses would be very counterproductive.

The Dollar:

This week we will have the Fed, the ECB, and the Bank of England announcing their rate decisions. Headline inflation had a huge pick-up today. A mysterious "inflation gauge tied to consumer spending" was up 0.8 percent in June. Some see this as dollar-supportive because they believe it increases the chances for a Fed hike later this year, but 'Tricky' at the ECB is far more likely to hike than the Fed - and sooner. If not this month/week, then in September.

The news on inflation is already depressing the US stock markets. If the Fed hikes, the stock markets will suffer tremendously. Given all the effort they are putting into suppressing gold to prevent money from bleeding away from stocks, there is no way they will jeopardize stocks by hiking now or anytime soon. There will be a lot of talk on inflation from the Fed, but no action.

That means the dollar will fall into the winter months, not rise. I expect it to break the tight range it has been moving in since March by November.

Oil:

Oil seems to have found support above $120/bbl. if it doesn't break down from here by the end of this week, I expect another leg up, back toward the $147 level. I don;t know if it will exceed that, with all of the demand destruction going on in the US.

If oil breaks down, of course, the press will keep hammering gold, claiming this weakens gold, which in my book is a bunch of garbage.

If oil rises, however, it will further tend to depress the dollar. With news of another bank failing over the weekend (isn't it funny that these things always happen when nobody is looking?) the news environment for the dollar and the US economy really isn't that great in view of all the other problems.

Fundamentals point to a serious crash this winter. Gold will rise.