"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, February 28, 2013

U S Dollar Strength Undercutting Gold

We have seen several headwinds blowing against gold over the last couple of months. These have been noted here and include the rush into equities, the general abandonment of the commodity sector by some large players, the notion that the worst for the global economy is behind us, etc.... At to this list the strength in the US Dollar.

It should be noted here that a great deal of this strength has been at the expense of the Japanese Yen, which has seen a strong move lower although it has temporarily stabilized. It has also been due to general weakness in the British Pound, which as you know by now, is in association with conditions that led to last Friday's downgrade of the UK credit rating.

Since Monday of this week however, the Dollar has gained at the expense of the Euro, which has been on the whipping end of the unwind of large one way carry-trade related bets. As the Euro sinks over fears of the growth potential in Euroland and a rise in concern over the austerity programs that were devised so as to alleviate bond market fears over there, the Dollar has now managed to break out to the upside from a 5 month long consolidation pattern.

The USDX has had trouble clearing the 81.50 level. It did manage to do that last week but only barely. This week however, especially when the results of the Italian election were made known, it added some decent followthrough to the upside and looks as if wants to go higher.

There is the potential for a wild swing however depending on what shape or form this upcoming sequestration thing takes tomorrow. If however, the USDX closes out the week above 82, odds favor a run higher towards 82.70-82.75.

The currency markets are incredibly volatile right now as risk trades are unwound and then reinstated. It is quite difficult attempting to read some of these markets due to the big price swings and somewhat erratic behavior of late. REgardless, a higher Dollar will keep some pressure on the gold price. Should the Dollar exhibit a negative response to the sequestration, look for gold to bounce again as it has entered a support region on its price chart.


  1. Dan,

    I understand Japan is a country in of its own,with a 20 year cycle that they probably have no chance of breaking out of (See Kyle Bass). I thought I would ask you as an expert on commodities, esp, American production dominanated such as wheat. ZH showed they (Japan consumers) will now have another hike in food costs if..they want to eat a balanced diet beyond sushi, rice, and whalemeat. How can Abe continue to put his people through this? Seems like their strong exports (Think Sony, Nissan)etc. will have to increase their costs thus export inflation. And here comes So Gen...such a strong bank, telling the world that Gold is dead...shouted out amongst the millions on MW. Based on limited research, it appears that these entities including BEN, are reaching at this point. I do not have leverage except what the miners are doing to me, but, hey, I bought,sold, rebought, sold, rebought and am now sitting in a position that I believe will win when a bit of social disorder begats..I also hope and pray that the continued wimpering coming from the Obama administration saying policeman, teachers,unions, first responders.....blah blah..blah. goes head long into a nose dive in cement. Seems to me there are many folks suffering and we cannot continue to pay pensions for NON PRODUCTIVE ASSETS such as the Dept of Energy, Dept of Education, the biggest waste EPA, blah..blah.!!! I personally will be the first responder on any attempt at this location!! And Smith and Wesson, Mossberg, and others will be there too. I do not have to pay those responders any pensions, overtime, or excessive heat pay. They my pals are well tested, and as of a week ago are really doing great!!! Starting to get a bit interesting. Let me know if I am way off base.

  2. Really really love ya Dan (Agape) as I only swing Eros with my wife. Seems like their just is not any wisdom left, only capitulation, progressive thought and lies shouted from the political realm spewed into the minds of the mindless through the internet headlines with very little backup. Really a sad sight.

  3. gold books a loss of 5.1% for the month of February and setting a fifth consecutive monthly drop. This marks gold's longest run of monthly declines in 16 years.
    ...this is probably healthy for gold as it went up 12 straight years.

    silver 'shortages and backwardation' still abound across the gold bug sites, as silver stocks at comex rise to most since 1995 at over 162mil...

    still everyday at the gold bug sites it's only bullish articles, why not it worked for 12 straight years...this time the bottom might not come in until the bullish articles cease...


  4. As far as non existent inflation, just went to Safeway, wow, chicken breasts $3.99lb (1.5 years ago $1.89 lb, 80-20 burger meat $3.99lb (1 year ago $1.69lb, gas now hovering around $3.89 gal (1 year ago $2.99 gal), seems that the lies spewed are getting a bit steeper in the curve? No? Jimmy Carter lives!!! Well the reincarnation exponentially to the third degree!

  5. Dan,

    Just as the doctor ordered all markets plunge at close..haahhahahah. Now we need Sequestration and the elimination of all non essential government personnel. To me that means, lets fund the military and nothing else. No more borrowing, no mowe FED bs printing, oh, I am sorry, digitizing, whatever that lie means Mr. Bernanke. Times will be tough, government will shrink, and small business and entrepreneurs will again flourish.Go North Dakota, go coal, go oil, go Texas, we need to cut the head off this snake. I will accept the losses, but if we don't give me my guns, my ammo, my anti Obama stickers and lets get it on. I ready. Many more Americans died to create this system, so, as long as my little girl can survive I can die. I hope all these progressives realize that we are now ready. That is all that matters to me at this point. Lexa G. My love, my my life.

  6. Dan,

    Thank again... Your sanity has kept me afloat over the past few months. Just looking at the HUI:GOLD and it's down around .22 (.224). Looks like we made it down to around.20-.21 during the 2008 nosedive, so there is some leverage yet to be had on the downside by the miners.

    Interestingly, there are few miners that yield over 3%. One argument for miners is that they will look like utilities in their yield--this is far from happening even though we have had 1600 gold for two years...

    1. MDLGTO;

      Yes, the miners were supposed to be throwing off great dividends and all things considered back when gold was trading over $1800, they should have gotten their houses in order and cut expenses and returned some of the profits that would have been pouring in to shareholders in the form of strong dividend yields. That would have made folks thing twice about shorting them into oblivion. Think about the oil and gas guys who pay such high yields. In an low interest environment, that in itself is a strong reason to own a stock. It is beyond pathetic to see gold sitting up at these prices and these miners struggling to make decent profits.

  7. I've noticed something else that undercuts gold....EVERYTHING.

  8. Check out the long-term chart of the euro against the dollar. The euro peaked in 2008 and has had a series of lower highs against the dollar since then, with a general down trend. However, downside resistance at around 1.20 has yet to be broken. Looks like it's going to test that resistance.


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