The disconnect between gold and the dollar.
For some time, when the dollar fell, gold went up, and vice-versa. There is a correlation that has been around for some time as gold is priced in
dollars. Lately, however, the dollar and gold have both been going up. This is interesting as the reasons for gold going up should be the very same reasons the dollar goes
down. Not the case. Here are the charts on both:
Geopolitically, gold has every reason to move higher. With more and more tension and no real solutions in sight in the short-term, investors around the world are moving into the tried and true safe haven of
gold. If the pace continues, we’ll be seeing a test of the highs in the fall.
But, why is the dollar heading along for the ride? Safe haven? Hardly.
On the contrary, the same reasons that gold is pushing up should push the dollar straight to hell-in-a-handbag. North
Korea? Not exactly a friendly situation for the Japanese. However, instead of rushing to the dollar in this situation… since it is the U.S. putting on most of the pressure, the European currencies would be the ones to push higher… especially the
The other big problem in the air is the Iran (and now Syria) situations. Iran is intent on being the next nuclear power in the
world. Either that, or they are brilliant negotiators and are looking for financial aid and incentives by the
truckload. Still, these situations are the direct result of confrontations with the
U.S. Again, why is the dollar not feeling at the very least, queasy?
Syria has come out saying they are moving out of the U.S. dollar completely as a reserve currency and into the
euro. After all, their biggest trading partner is Europe and holding their currency makes more
sense. In the meantime, they’ve announced that at reserves of $8 billion, they’ve already moved half and will push the other half out later this
year. Where’s the thunder we normally get when a country announces this kind of financial planning?
There are fundamentals involved in gold. There is inflation still in the air. However, this inflation is what would either propel the dollar, or push it lower (with the lack of
inflation). Think about that for a second: If there was inflation, and the Federal Reserve was intent on ending it, then gold would move
down. Instead, gold seems to be moving higher as if to say there is no threat to the Fed ending its
move. Wouldn’t that mean a lower dollar in the form of lack of interest rate differentials?
My FX Trading Plan:
I’ve been trading a gradual decline in the dollar for some time. We’ve seen a good move lower the past few
days. Since, there has been a mild recovery. I’m using this as a chance to sell more
dollars. So far, the ideas have panned out. However, there haven’t been large moves to follow-through
on. And that just might be the very reason the dollar is not moving lower…. The lack of follow-through.
If it isn’t going down, there must be strength there….. yeah, right.