Dollar Set To Surprise

By: Captain Hook | Mon, Nov 30, 2009
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The following is an excerpt from commentary that originally appeared at Treasure Chests for the benefit of subscribers on Tuesday, Nov 17th, 2009.

The dollar ($) is set to surprise the few remaining speculators that think it can't happen by falling further straight away, possibly taking it down to test all time lows at 71. Here, we are talking about the possibility of a more disorderly decline in the $ developing as a result of gold progressing into a parabolic rise, primarily predicated on year-end hedge fund buying into December. First it will be this that takes precious metals higher into year-end, and then the rally could continue for numerous other reasons, not the least of which being a lack of physical, which appears to be a growing concern.

You will know real trouble is brewing in this regard when you see silver sail through the $18 mark, which is critical technical resistance as far as the cabal is concerned. Two consecutive closes above this mark could prove interesting indeed with dwindling and low official inventories, potentially catapulting the white metal $5 to $10 higher in very short order. (Note: Yesterday was day one.) And this possibility has been heightened considerably with the recent price action in the Gold / Silver Ratio, where it is likely finished having traced out a corrective zigzag, which will be covered in greater detail below. So watch for a close over $18 in silver today for the 'buy signal', and if planning to buy more physical, as supplies could dry up quickly afterwards.

If silver fails to finish over $18 today then, we could be looking at a more meaningful correction finally, possibly taking us past options expiry. It would not be surprising to see equities weaken post expiry this Friday anyway, without the support of puts to keep prices buoyant. You should know open interest put / call ratios have been rising sufficiently to support this rally in equities, and this is primarily why it's happening. And by the same token until proven otherwise one should expect put buyers to return every month until proven otherwise, even if the majority of buying is for hedging. It's the pros buying these days, hedging their long bets. The little guy is either wildly bullish or an exhausted bear; effectively out of the speculating game either way.

The larger buyers will soon return if a near-term correction ensues however, as outlined last week, to protect fees and bonuses into years end, along with window dressing related buying. And while this might create a larger liquidity related concern in early January, again, as described last week, expect hedge fund managers to be buyers of gold (precious metals) right up until the end in December, possibly taking prices higher in manic fashion into decade's end. As you should know from recent undertakings, this would be consistent with previous decennial patterns concerning the strongest sector of the decade, with gold and precious metals having this distinction since millennium's turn.

So, it appears our greedy bankers / brokers will have their Merry Christmas this year, hoping the public continues to ignore the increasingly embarrassing message a runaway gold price is throwing off, but they will likely not escape entirely, and in the end. The irony off all this is price-managing bankers may have finally outwitted themselves in terms of their own eventual demise, with the greedy hedge fund industry they have nurtured and used to do their bidding all these years forced to turn on them - it's survival of the fittest. If they bid gold up too fast it will create a mania, which in the end will bring attention back to precious metals in roundabout fashion.

Martin Armstrong has a new commentary out calling for much higher gold prices, and for the right reasons. I recommend you read this document as many times as it takes you to come to an understanding of the primary concepts of why prices move the way they do, and more specifically why gold is set to vault higher well past December hedge fund related buying. Martin has identified April 16th (my birthday) as a potentially important panic cycle related turn-day in 2010 that could be set to mark a high in gold (precious metals), and possibly equities in general. This is because the dollar ($) could be set to surprise on the downside, for reasons that go far past carry trade related selling or hedge fund speculation and gaming.

You should know most hedge fund buying is exactly that, nothing more than competitive gaming. These guys are not in it for the long-term, and it wouldn't matter to them if they were trading gold or widgets. So, if the $ keeps falling past year's end some observers would be surprised, despite obvious reasons in plain view for all to see it will continue to offer no fundamental demand. Sure it seems ridiculous for China to criticize the US for printing money when it's own activities appear just as bad, however they have not increased their monetary reserves more than a hundred times over the past few years like the socialists in the States, which is what all the hubbub is about. The Chinese are worried the ridiculous little people in Washington will start monetizing pensions plans, etc., taking the practice too far, not that it's already not happening. (See Figure 1)

Figure 1

If you were wondering exactly why the $ is falling against all the other rapidly depreciating fiat currencies out there now you know then - because Barack and the boys in Washington are out of control, never mind the Fed. And it's not likely they will stop expanding the extent of their monetization practices voluntarily, which is the message gold is giving us unbeknownst to the gamers buying it for year end window dressing purposes. Despite this price managers will attempt to stabilize the $ as much as possible to hide their money printing activities, but as indicated in Figure 1 above it will not work, not with both internal and external forces bearing down on it - pun intended. What's more, and as can be seen below, while there's always the possibility of a minor degree (a - b - c) correction in sympathy with the second leg of deleveraging that is sure to arrive at some point, the longer-term trend is undoubtedly down - way down to 30ish if the Fibonacci resonance derived projection is accurate. (See Figure 2)

Figure 2

This is why I say the $ is set to surprise - surprise on the downside. And this is also why equity bears might continue to be surprised about how resilient prices remain, not that real measures against gold will not continue to plunge. Of course there's always the exception to the rule, which in this case is silver. Here, if history is a good guide, we would see the Gold / Silver Ratio closer to the teens than these lofty levels, finally breaking price management related dependency in suppressing this easily controllable little market. The risk price managers have created for themselves here is serious if talk of some sort of silver standard returning to international monetary affairs becomes a reality (or perhaps just serious talk of commodity based currencies in general, which is starting now), quickly turning an easily manageable little market into a not so easily manageable big problem overnight. This is when the Gold / Silver Ratio could really plunge. (See Figure 3)

Figure 3

Unfortunately we cannot carry on past this point, as the remainder of this analysis is reserved for our subscribers. Of course if the above is the kind of analysis you are looking for this is easily remedied by visiting our continually improved web site to discover more about how our service can help you in not only this regard, but also in achieving your financial goals. For your information, our newly reconstructed site includes such improvements as automated subscriptions, improvements to trend identifying / professionally annotated charts, to the more detailed quote pages exclusively designed for independent investors who like to stay on top of things. Here, in addition to improving our advisory service, our aim is to also provide a resource center, one where you have access to well presented 'key' information concerning the markets we cover.

And if you have any questions, comments, or criticisms regarding the above, please feel free to drop us a line. We very much enjoy hearing from you on these matters.

Good investing all.

 


 

Captain Hook

Author: Captain Hook

Captain Hook
TreasureChests.info

Treasure Chests is a market timing service specializing in value-based position trading in the precious metals and equity markets with an orientation geared to identifying intermediate-term swing trading opportunities. Specific opportunities are identified utilizing a combination of fundamental, technical, and inter-market analysis. This style of investing has proven very successful for wealthy and sophisticated investors, as it reduces risk and enhances returns when the methodology is applied effectively. Those interested in discovering more about how the strategies described above can enhance your wealth should visit our web site at Treasure Chests.

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