Gold, Treasury Notes, Dollar – May 2011

The long term trend for gold, Treasury Notes, and the US Dollar seems to be holding up.

There has been some noticeable action in Treasury Notes most recently, in particular since February 2011 investor’s appetite has been growing again and thus rates have declined and remained within the range that has been developing since 2008:


Gold’s trend has been holding up steady as always:


As you can see in the chart there has always been room for dips in gold, and that is not different now. It may very well drop somewhere between 1,300 or 1,400, however, so far it has always done so only to bounce back even stronger after that. In particular when the next credit crunch happens it is possible that gold will see some dips alongside all other commodities, but then come roaring back up while other commodities continue to crash. This is at least what happened in 2008 and it may well happen again.

… and the seemingly most hated currency in the world has also remained within it’s long term trading range, and it may be possible that once again it will show some significant strength for the months to come:


The deflation trade has been dormant for a while indeed, but its expected trends have held up so far, and its benefits are most noticeable when everything else snaps back into the general trend of the Great Depression 2.0.

Related Posts:

Has The Dollar Rally Started?

The rally of the US Dollar vs. other major currencies is something that I have been expecting for a while now. The dollar made some bold moves recently. It is conceivable that this may be the kick off to that said rally. Just as an example, below see the Euro/Dollar chart:


The upward trend in the Euro since March seems to have begun reversing. Dollar perma-bears will look at this as just another temporary counter trend move. I believe that it is possible that a longer term Dollar rally is quite conceivable, for all the reasons I stated again and again and that I will not delve into here again. You can read the “Related Posts” below if you like.

Daily FX writes US Dollar Closer to Beginning, Rather than End, of Bull Move:

This is the same chart that was published yesterday. I wrote then that “the clearest portion of the decline is the initial decline that ends at 14670. Since then, price has stair stepped lower in what could be the beginning of a 3rd wave. Staying below 14785 keeps this extremely bearish count on track. A loose target is 14000, which is the 161.8% extension of wave 1.” This analysis remains on track. Risk can be moved to 14600 and resistance is 14420-50.

Sometimes Mish tends to have the amazing tendency to call certain trend reversals almost exactly on the day of the peak/low. This is him on Nov 27: New Record Low Yield On Two Year Treasuries; Is This The Start Of A Dollar Rally?

Given the US markets were closed yesterday, I have the same question floating in my mind as a day ago, wondering if this is another one day wonder rally in the dollar (and another one day wonder selloff in equities) or if this is the start of a long awaited correction in both the dollar and equities.

A significant Dollar rally is, at the same time, very bullish for Treasurys and and very bearish for stocks. Gold may continue to do fine. Time will tell …

Related Posts:

3% Bullish Sentiment on Dollar – Indication of a Coming Dollar Rally

Please consider this interview with Robert Prechter:

James Kostohryz recently wrote on

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.

Related Posts:

US Dollar Looks Bullish Fundamentally & Technically

Mish writes Ewave Count on the US Dollar Suggests Move Up is Coming:

US Dollar Weekly Chart

I have been following the above chart for some time and a few weeks ago emailed a friend “There is room for one more wave down”. And so here we are.

But hold your horses. Wave 5’s can truncate or extend. That is why I have two “?” on the chart. Either way, the count appears corrective and there should be another relatively strong wave (of some sort) back up once wave 5 down has finished.

Right now, should the weekly candle continue up and solidly break the trendline, it would be suggestive that wave 5 is over.

This is very significant given the fact that the US$ is typically inversely correlated with the S&P 500 as well as commodities. So rather than focusing on the S&P 500 “jello” counts directly, one is likely better off following the US$.

Bear in mind, the primary focus of technical analysis in general is not predictive capability, but rather to find spots where one can initiate a trade with a stop loss relatively close by. In that regard, the solid trendline above is the place to watch.

Daneric’s Elliott Waves

I am not the only one to come up with that US dollar count. Dan at Daneric’s Elliott Waves sent me the same, but far more detailed, count a few days ago (click on above link to see).

Since then I have been following his site and I can easily say he knows far more about Ewave than I do. What I really like are his “no nonsense” comments such as:

PS – I don’t really pay attention to what EWI has as a $ count. This chart I just made up tonight completely on my own. It seemed easy enough to count and the chart generally took less than 30 minutes to complete.

PSS – There is a great positive divergence on the RSI. So indeed it may turn back up hard soon enough. Its hard to say exactly how the micro waves will trace over the next month. But make no mistake, I think this chart portends the dollar will make great advances upward contrary to what most people assume.The trouble most people get into with Ewave is coming up with a thesis, then struggling to find a count that will fit it. Given Ewave is rather subjective, that is an easy trap to fall into.

Daneric said “the chart generally took less than 30 minutes to complete”.

That is the way it should be. I do not want to spend 4 hours plotting alternatives when all they do is say where we have been, not where we are going, only to be subjected to a barrage of 200 emails all telling me why my count is wrong.

By the way, it only took me 5 minutes to do my chart but then again I only labeled a portion of the chart, a practice I do not recommend because it can cause problems.

Please note Daneric’s comment “But make no mistake, I think this chart portends the dollar will make great advances upward contrary to what most people assume.”

That is quite consistent with my long-term belief the US dollar is in a wide trading range and is not about to collapse (because it already has and every county is embarking on beggar-thy-neighbor competitive currency debasement policies).

The key is neither one of us is forcing a count to appease that belief.

I wrote about the fundamentals recently in China Pegging Yuan to US Dollar Again:

From June 1995 through the beginning of 2005, the Chinese government was pegging its Currency to the US Dollar. It was producing money (Yuans) to purchase Dollars, fostering a US current account deficit.

In 2005 the Chinese government ended the peg against the US dollar and switched over to a currency basket. From 2005 though June 2008, the value of one Dollar dropped from RMB 8.28 in 2005 to about RMB 6.83 by June 2008.

Since then, it seems, the fall of the dollar has stopped and the Yuan/Dollar exchange rate remained suspiciously stable. This has gone on through right now. The chart below illustrates this:

The stabilization of the Dollar against the Yuan has almost coincided the reversal of the Dollar’s fall against other major currencies. It thus appears as if, since mid 2008, the Yuan/Dollar peg has been reinstated and continues to be in place as these lines are written. What is also noteworthy is that the US current account deficit has been declining sharply since then.

A first look at the above chart leads one to believe that Chinese and US authorities aimed at putting an end to the fall of the Dollar, and thus intervened accordingly. However, another possibility which I would like to propose is that the Dollar had fundamentally and truly begun to stabilize at the level of RMB 6.83 at that point and was actually in for a major revaluation upwards. Thus the current intervention by Chinese authorities could actually be aiming at a stabilization of its own currency at a higher level than the market would mandate.

Some points fundamentally support the thesis that the dollar should gain in value against the major currencies:

– Global deleveraging is driving investors from other currencies back to the Dollar
Deflation hitting the US first, and other countries only later
– Imports into the US are falling rapidly
– Significant domestic spending sprees by the Chinese government

All this may indicate that if the Chinese government were to let the Yuan float freely at some point, it may actually drop significantly against the US Dollar. Such an event could possibly be the ignition for a significant Dollar rally in the years to come.

Related Posts: