Please consider this interview with Robert Prechter:
James Kostohryz recently wrote on Minyanville.com:
3. Dollar to rally.
As I predicted in my article, 9 Post-Earnings Season Predictions, the US dollar is likely to experience a major rally over the course of the next year or so. As I have explained in several of my articles, the US Dollar is the most fundamentally sound of all of the major currencies in the world, and this basic fact will become increasingly evident in the next 12 months as problems in Europe and Asia begin to deepen.Technically a bottom in the dollar seems to be lining up with the transition in the above-mentioned fundamentals. Although I am not a follower of Elliot Wave Theory I would note that Robert Prechter has come out recently predicting a major bottom for the dollar based on his wave theory.
[smartads] Aside from the wave count, he has also cited the incredible statistic that the Dollar Sentiment Index is registering only 3% bulls, one of the lowest readings in 20 years. Note that in March of 2008 when the dollar bottomed, the Dollar Sentiment Index registered 5% bulls. This compares to a reading of 93% bulls in March of 2009 when the dollar topped.
Thus, technical and fundamental factors are converging in favor of the US Dollar. Gold will slump in response to a rising dollar for 2 reasons: The first is that the US dollar collapse thesis has been a major underpinning for gold and this thesis will become thoroughly discredited. The second is that a rising dollar means that gold becomes more expensive in the rest of the world and the vast majority of the world’s demand for gold is outside of the US.
I agree with his bullishness on the dollar. I don’t necessarily agree with his conclusions on gold. I think gold may actually do OK during a dollar rally. Maybe it will drop a little, maybe rise a little, but it will most definitely outstrip other commodities. In fact, I think a smarter play when betting on a dollar rally would be to short any other commodity BUT gold.
Gold is a money commodity. A dollar rally would be a sign of further delevaraging and deflation. During deflation cash is king. And gold is the king of all cash.