The Dollar vs. A Basket of Others

[kingcopper]

I'm a newbie with a simple question.

The recent rise in the Dollar seems to be caused by either the intervention of other central banks or the relative weaknesses showing up in other countries and their currencies.

My question would be how far could PMs fall in dollar value because of world wide economic weakness?

It seems like all of our savings IN EVERY FORM are pretty much toast as of now. 10-15% inflation in non-savings assets doesn't help either.:mad:

[c1ue]

Re: The Dollar vs. A Basket of Others

The chartists and other numerologists will say things like Fibonacci retracement, blah blah.

But anytime a major correction occurs, look to retracement within a 2 or 3 year span. So 700s is very possible, and high 500s also plausible.

The big question is how much ammunition will be expended in this round of pump the dollar.

[Jim Nickerson]

Re: The Dollar vs. A Basket of Others

The chartists and other numerologists will say things like Fibonacci retracement, blah blah.

But anytime a major correction occurs, look to retracement within a 2 or 3 year span. So 700s is very possible, and high 500s also plausible.

The big question is how much ammunition will be expended in this round of pump the dollar.

On one hand here you eschew "chartists" which I presume means technical analytical methods, and numerologists, but at the same time put forth what surely is your own unsubstantiated speculation with a time-frame no less as to what might happen.

Do you care to explain how you arrived at the current drop in gold as being recognizable as a "major correction" and on what basis you believe or know that once an asset is into a "major correction" that it will go two to three years? Your commments read to me that you are some sort of a "closet" technical analyst or heavens forbid even a numerologist.

[FRED]

Re: The Dollar vs. A Basket of Others

On one hand here you eschew "chartists" which I presume means technical analytical methods, and numerologists, but at the same time put forth what surely is your own unsubstantiated speculation with a time-frame no less as to what might happen.

Do you care to explain how you arrived at the current drop in gold as being recognizable as a "major correction" and on what basis you believe or know that once an asset is into a "major correction" that it will go two to three years? Your commments read to me that you are some sort of a "closet" technical analyst or heavens forbid even a numerologist.

EJ writes in:

Recall our last post on gold.

Gold Update: The small trade within the big trade - March 5, 2008

We remain long gold as we have since August 2001. Recent price action compels us to remind readers that the precious metals markets have two primary drivers, with the currency depreciation and inflation trade driving long term prices and highly leveraged trades by funds driving short term price action.

Note the following long term price dynamic.

Since 2001, the gold price has increased in four distinct growth trends as depicted above.

A. 2001 - 2006: Post-bubble gradual currency depreciation and inflation trade
B. H1 2006: Rapid speculative trade
C. H2 2006 - 2007: Resumption of gradual currency depreciation and inflation trade
D. 2007 - Present: New rapid speculative trade

Within the current rapid speculative trade, we are watching for short term price volatility much as occurred at the end of the previous similar period C (H1 2006): a 20% correction from $720 to $580. A similar correction today would take gold prices down $200. We are also within the long term for volatility that will portend the end of the currency depreciation and inflation trade that began in 2001.

Based on that forecast when gold was trading at $974 that day, the reverse of the rapid speculative trade by funds can be expected to take gold down to the high $700s.

We shall soon find out if our thesis is correct that there are two gold trades going one here, a long term negative dollar trade and within it an event driven speculative trade that accelerates moves within a smaller range.

Buy and holders will tend to ride out the volatile short term moves, as long as the long term weak dollar thesis holds, while traders will tend trade the short moves via ETFs, as transaction costs for trading in and out of physical are prohibitive: physical for the long term trade – seven years and counting – ETFs for the short term trades, if one is so inclined.

[Guest]

Re: The Dollar vs. A Basket of Others

EJ writes in: ... precious metals markets have two primary drivers ... currency depreciation / inflation trade and highly leveraged trades by funds.

Makes no mention that gold's price is also now increasingly impacted by escalating real and sharply rising energy input costs combined with declining ore grades. These are laege, non-financial, non-monetary, geologic and resource driven components of not only the gold price directly, but via a back door input into generalized inflation, constitute a further input into the gold prices' response to generalized inflation.

Ironically, much of the inflation in gold's price - which iTulip refers to as solely currency dysfunction (classic monetary inflation) or as being speculator derived, is also coming straight out of sharply escalating real energy price rises. Dr. Keen for example in direct discussion with EJ acknowledges the petroleum input cost is a notable inflation input, but then only days later any reference to that slips right out of iTulip clarifications on gold, the preeminent benchmark for "what's happening" in inflation.

The real energy input cost is a large part of inflation - tough to argue against this point - it is all tangled up and inextricable from monetary inflation, simply because eal energy prices are a large (and growing) part of cost push inflation. The gold price itself is powerfully affected by ever higher mining energy and materials costs and declining ore body discoveries. One needs merely to note that despite a 3 fold rise in the gold price, gold mine profitability if anything is degrading!

Yet iTulip refers only to monetary debasement and to speculation as the gold price drivers. Although Dr. Keen, in whom EJ places a very high degree of trust, mentioned specifically a large and growing energy price component, any mention of Dr. Keen's acknowledgement of this (rising) inflationary input apparently is omitted from iTulip explanations only days later. This is part of the same "classically derived" approach to the core sources of inflation here at iTulip - "always and everywhere a monetary (and thereby also financial)phenomenon" is rapidly approaching a point where it becomes inadequate to encompass the inflationary inputs of Peak Cheap Oil.

Once again, iTulip veers away from incorporating these new, geologically derived, and increasingly structural and large inflationary inputs into it's assessments - and that's in a discussion regarding GOLD which is a mined metal!

[jk]

Re: The Dollar vs. A Basket of Others

lukester, since gold is not consumed, virtually all the gold ever mined is still circulating, and this reservoir is far larger than the annual new production. this means the marginal cost of new production is a relatively small factor in the short to intermediate term. your argument would be more relevant for a consumed resource.

[Guest]

Re: The Dollar vs. A Basket of Others

lukester, since gold is not consumed, virtually all the gold ever mined is still circulating, and this reservoir is far larger than the annual new production. this means the marginal cost of new production is a relatively small factor in the short to intermediate term. your argument would be more relevant for a consumed resource.

Silver - all of it is consumed, (structural production / consumption deficit) and it's price is joined at the hip to the gold price.

Ditto Platinum and Palladium - precious metals but primarily also industrially consumed metals.

Ditto for that matter JK, the entire minerals commodity complex. Anyone here still relying on the conclusion that the commodities complex primary input is currency and speculation driven needs to go back to school. It's primary, and ever growing input today is geology, demographics, and energy driven. But I notice few people here seem discomfited by the persistent lack of mention of this major 21ST CENTURY input when topics like this come up. The old "financial and hedge fund" reasons get rolled out as the all-stars, every time. No wonder we don't read the OIL DRUM around here.

[kingcopper]

Re: The Dollar vs. A Basket of Others

The relatively large amount of silver that is mined every year should be inflated in price more than gold because of the inflated expenses from energy consumption. I don't question the cheapness of silver at $15.50 an ounce considering the energy factor and dollar debasement.

What I do question is the metals market in totality when silver circa 2008 can be so cheap relative to the world's currencies and other commodities.

It looks to good to be true as of today. That alone leads me to believe that the ignorance of mankind may well keep the metals from flying afterall. It can't be questioned that society today is full of dummies when compared with 1980 or 1930. Maybe lies do become truth when enough idiots have the need?:eek:

[grapejelly]

Re: The Dollar vs. A Basket of Others

Lukester, I am a doubter that high energy costs affects the gold market.

I think the opposite. High energy costs beget high inflation. Not through higher prices. But through higher subsidies, creeping socialism, price controls.

Today's oil producers are completely different from the ones in the 1970s when we had the last big bull in gold. They are government teats, being milked by their respective governments. They are not investing in the future, because governments are poor caretakers of resources and only pay attention to what they can get and give away now.

Governments will always spend income + future income, so the oil money leads to greater currency depreciation.

That is why gold is a great bet right now.

Senior miners will be buying juniors to buy proven reserves in the ground. Ultimately, gold miners are counter cyclical to the equity market, and the large ones will grow in value and start buying up the smaller ones and we will be going crazy.

But...

I think right now gold is simply caught in the downdraft of the commodities price correction. Plain and simple, gold is caught in the bucket with oil and beans. Makes no sense but short term moves are driven by technical factors, as EJ reiterates above.

[FRED]

Re: The Dollar vs. A Basket of Others

Ironically, much of the inflation in gold's price - which iTulip refers to as solely currency dysfunction (classic monetary inflation) or as being speculator derived, is also coming straight out of sharply escalating real energy price rises. Dr. Keen for example in direct discussion with EJ acknowledges the petroleum input cost is a notable inflation input, but then only days later any reference to that slips right out of iTulip clarifications on gold, the preeminent benchmark for "what's happening" in inflation.

No. Our longstanding position is that energy input cost inflation depresses gold stock prices, and that the price of gold long term is a function of dollar purchasing power and the cost of digging more out of the ground, which is largely a function of higher energy and labor costs, that is, inflation.

Too many dollars or not enough oil? We have said since 2006: both. Our best guess is that the current price is 80% too many dollars and 20% not enough oil, per Peak Cheap Oil.

[bart]

Re: The Dollar vs. A Basket of Others

EJ writes in:

Recall our last post on gold.
...

Based on that forecast when gold was trading at $974 that day, the reverse of the rapid speculative trade by funds can be expected to take gold down to the high $700s.

We shall soon find out if our thesis is correct that there are two gold trades going one here, a long term negative dollar trade and within it an event driven speculative trade that accelerates moves within a smaller range.

Buy and holders will tend to ride out the volatile short term moves, as long as the long term weak dollar thesis holds, while traders will tend trade the short moves via ETFs, as transaction costs for trading in and out of physical are prohibitive: physical for the long term trade – seven years and counting – ETFs for the short term trades, if one is so inclined.

I'm on board with EJ here, my broad target of a bottom has been in the $780-$830 for some months now.

And if we are or will be in the 1974-1976 "rhyme", my bottom target is around $613. My preferred interpretation currently is the correction as above, a run up to $1166+ and then back into the low $600s... and that and $4 will buy you an indecent Venti at Starbucks.

One last observation - the down trend line in the USD since 2005 shows resistance in the general .77 area.

[Guest]

Re: The Dollar vs. A Basket of Others

Bart -

OK, but we want these updates and targets (especially the BIG ONE at $1166) on a regular weekly basis, not just whenever you feel like it, or when some controversy around here prys that information out of you like pearls out of some reluctant visionary oyster. Lukester needs to conserve diapers here. :p (shuffles around unsteadily in a bathrobe dark rings under his eyes, with a blank, vacant gaze, all shell-shocked after this week's roughing up in the commodity markets.) And apologies to FRED (Who promptly falls out of his chair in astonishment at hearing an apology from such an opinionated @#$$ol%) for imputing to iTulip that they didn't ever acknowledge the energy input costs on mining. "SO I WUZ WRONG!". [ Eh? What did he just say?? :eek: ].

I'm on board with EJ here, my broad target of a bottom has been in the $780-$830 for some months now. And if we are or will be in the 1974-1976 "rhyme", my bottom target is around $613. My preferred interpretation currently is the correction as above, a run up to $1166+ and then back into the low $600s... and that and $4 will buy you an indecent Venti at Starbucks. One last observation - the down trend line in the USD since 2005 shows resistance in the general .77 area.

[bart]

Re: The Dollar vs. A Basket of Others

Bart -

OK, but we want these updates and targets (especially the BIG ONE at $1166) on a regular weekly basis, not just whenever you feel like it, or when some controversy around here prys that information out of you like pearls out of some reluctant visionary oyster. Lukester needs to conserve diapers here. :p (shuffles around unsteadily in a bathrobe dark rings under his eyes, with a blank, vacant gaze, all shell-shocked after this week's roughing up in the commodity markets.) And apologies to FRED (Who promptly falls out of his chair in astonishment at hearing an apology from such an opinionated @#$$ol%) for imputing to iTulip that they didn't ever acknowledge the energy input costs on mining. "SO I WUZ WRONG!". [ Eh? What did he just say?? :eek: ].

Tell you what... I think we can arrange to take up a collection for a one year supply of Depends, should you so desire... :eek: :cool: ;)


And since you asked so nicely and have shown (im)proper obeisance, herewith is one of my normally private timing charts (out of about 20 total)... and with a live link. As you can see, a trend line break is quite a decent predictor of an upcoming trend change. Now its all your fault if you miss it... :rolleyes:

[Guest]

Re: The Dollar vs. A Basket of Others

That is seriously ugly looking Bart. Say it ain't so. My (wildly overpriced) gold and silver trend trader is making the same kind of noises unfortunately. Where do you peg the silver price with a gold price in the high 700's? Also, does that 200 day MA look any different dialed out to a four year time span on the chart? Does that produce any shift at all? Actually, I'll just go spend some time browsing through your calls on your own website tomorrow. (Where's my MAALOX!?).

[bart]

Re: The Dollar vs. A Basket of Others

That is seriously ugly looking Bart. Say it ain't so. My (wildly overpriced) gold and silver trend trader is making the same kind of noises unfortunately. Where do you peg the silver price with a gold price in the high 700's? Also, does that 200 day MA look any different dialed out to a four year time span on the chart? Does that produce any shift at all? .

Two great minds with but a single thought?... except I'm cheap... :cool:

Why ugly? It could turn on Monday...

Here's that chart's public and weekly based chart brother:





Sorry, don't have anything publicly available on silver like that.

The 61.8% Fib retracement is about $15 though, and gold & silver have been known to track each either other pretty well now & then. ;)