Sometimes, it is worth taking a break from the daily stock price action for gold price today and reminding ourselves why we’re in a MASSIVE Gold Bull Market.
What is the significance of the Dollar Index’s 80-level level?
Take a look, you decide?
Chart 1 – US Dollar Index looking across the abyss
The Dollar Index (a trade-weighted indicator of the US Dollar relative to other major currencies) hangs from a cliff.
Nothing is more refreshing than fresh air below 80. In the history of the currency, it has never been violated. Some believe that the index composition has changed and, based upon the old weightings, it would already be underwater. OK, it could be. Trading is all about the charts. However, the chart below shows that 80 could have been tested one too many times and may fall.
Intermarket parlance describes a positive correlation of Bond Prices and US Dollars. The Dollar moves lower, and Bonds move lower (interest rate rises). It’s simple to trade, you might say. There’s a catch. You need to take into account a significant and constantly changing time lag. The Dollar reached its most recent peak in 2002. In mid-2003, interest rates fell to their lowest point.
The Dollar’s continued decline will cause interest rates to rise. This is despite the fact that the Asian Central Banks are converting Dollars into US Bonds and artificially keeping rates low. Market forces prevail, and interest rates are now trending higher.
Real tangible assets can be used as a counterbalance for financial assets like the Dollar and Bonds. One’s that aren’t debt-financed (Real Property) and not economically vulnerable (Oil and Industrial Metals). That leaves our favourite, Gold!