Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Bitcoin, Crypto Market Black Swans from Google to Obsolescence - 1st Aug 21
Gold Stocks Autumn Rally - 1st Aug 21
Earn Upto 6% Interest Rate on USD Cash Deposits with Binance Crypto Exchange USDC amd BUSD - 1st Aug 21
Vuze XR VR 3D Camera Takes Near 2 Minutes to Turn On, Buggy Firmware - 1st Aug 21
Sun EXPLODES! Goes SuperNova! Will Any planets Survive? Jupiter? Pluto? - 1st Aug 21
USDT is 9-11 for Central Banks the Bitcoin Black Swan - Tether Un-Stable Coin Ponzi Schemes! - 30th Jul 21
Behavior of Inflation and US Treasury Bond Yields Seems… Contradictory - 30th Jul 21
Gold and Silver Precious Metals Technical Analysis - 30th Jul 21
The Inadvertent Debt/Inflation Trap – Is It Time for the Stock Market To Face The Music? - 30th Jul 21
Fed Stocks Nothingburger, Dollar Lower, Focus on GDP, PCE - 30th Jul 21
Reverse REPO Market Brewing Financial Crisis Black Swan Danger - 29th Jul 21
Next Time You See "4 Times as Many Stock Market Bulls as There Are Bears," Remember This - 29th Jul 21
USDX: More Sideways Trading Ahead? - 29th Jul 21
WEALTH INEQUALITY WASN'T BY HAPPENSTANCE! - 29th Jul 21
Waiting On Silver - 29th Jul 21
Showdown: Paper vs. Physical Markets - 29th Jul 21
New set of Priorities needed for Unstoppable Global Warming - 29th Jul 21
The US Dollar is the Driver of the Gold & Silver Sectors - 28th Jul 21
Fed: Murderer of Markets and the Middle Class - 28th Jul 21
Gold And Silver – Which Will Have An Explosive Price Rally And Which Will Have A Sustained One? - 28th Jul 21
I Guess The Stock Market Does Not Fear Covid - So Should You? - 28th Jul 21
Eight Do’s and Don’ts For Options Traders - 28th Jul 21
Chasing Value in Unloved by Markets Small Cap Biotech Stocks for the Long-run - 27th Jul 21
Inflation Pressures Persist Despite Biden Propaganda - 27th Jul 21
Gold Investors Wavering - 27th Jul 21
Bogdance - How Binance Scams Futures Traders With Fake Bitcoin Prices to Run Limits and Margin Calls - 27th Jul 21
SPX Going for the Major Stock Market Top? - 27th Jul 21
What Is HND and How It Will Help Your Career Growth? - 27th Jul 21
5 Mobile Apps Day Traders Should Know About - 27th Jul 21
Global Stock Market Investing: Here's the Message of Consumer "Overconfidence" - 25th Jul 21
Gold’s Behavior in Various Parallel Inflation Universes - 25th Jul 21
Indian Delta Variant INFECTED! How infectious, Deadly, Do Vaccines Work? Avoid the PCR Test? - 25th Jul 21
Bitcoin Stock to Flow Model to Infinity and Beyond Price Forecasts - 25th Jul 21
Bitcoin Black Swan - GOOGLE! - 24th Jul 21
Stock Market Stalling Signs? Taking a Look Under the Hood of US Equities - 24th Jul 21
Biden’s Dangerous Inflation Denials - 24th Jul 21
How does CFD trading work - 24th Jul 21
Junior Gold Miners: New Yearly Lows! Will We See a Further Drop? - 23rd Jul 21
Best Forex Strategy for Consistent Profits - 23rd Jul 21
Popular Forex Brokers That You Might Want to Check Out - 22nd Jul 21
Bitcoin Black Swan - Will Crypto Currencies Get Banned? - 22nd Jul 21
Bitcoin Price Enters Stage #4 Excess Phase Peak Breakdown – Where To Next? - 22nd Jul 21
Powell Gave Congress Dovish Signs. Will It Help Gold Price? - 22nd Jul 21
What’s Next For Gold Is Always About The US Dollar - 22nd Jul 21
URGENT! ALL Windows 10 Users Must Do this NOW! Windows Image Backup Before it is Too Late! - 22nd Jul 21
Bitcoin Price CRASH, How to SELL BTC at $40k! Real Analysis vs Shill Coin Pumper's and Clueless Newbs - 21st Jul 21
Emotional Stock Traders React To Recent Market Rotation – Are You Ready For What’s Next? - 21st Jul 21
Killing Driveway Weeds FAST with a Pressure Washer - 8 months Later - Did it work?- Block Paving Weeds - 21st Jul 21
Post-Covid Stimulus Payouts & The US Fed Push Global Investors Deeper Into US Value Bubble - 21st Jul 21
What is Social Trading - 21st Jul 21
Would Transparency Help Crypto? - 21st Jul 21
AI Predicts US Tech Stocks Price Valuations Three Years Ahead (ASVF) - 20th Jul 21
Gold Asks: Has Inflation Already Peaked? - 20th Jul 21
FREE PASS to Analysis and Trend forecasts of 50+ Global Markets by Elliott Wave International - 20th Jul 21
Nissan to Create 1000s of jobs with electric vehicle investment in UK - 20th Jul 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Strong U.S. Dollar Points to Lethargic Gold Price Trend

Commodities / Gold and Silver 2010 Feb 23, 2010 - 02:56 AM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleThe calendar date is now sufficiently far enough in the future from the injection of massive amounts of liquidity by the world's central banks in 2008 that if inflation was to be a consequence of that action, it would be readily evident. However, as we look around the world, inflation exists only in isolated cases. Certainly in the U.S., inflation is non existent. At the same time, rather than collapsing into oblivion, the U.S. dollar has been in a rally.


Pockets of inflation have appeared. Argentina, India, and China are experiencing rising prices. In the first two cases that experience may be more due to production shortfalls rather than money creation. Prices in China may be rising due to excessive credit creation. However, that development may also be a means of lowering that nation's export surplus without altering the Yuan's relationship to the dollar. But, again, to date, U.S. inflation remains moderate or near nonexistent.

Our first chart this week, above, helps to explain why, one, U.S. inflation is moderate, and, two, why the U.S. dollar has not collapsed into oblivion. In that chart are plotted two measures of the growth rate for the U.S. money supply, M-2 NSA. The blue line is the two-year growth rate, annualized. It might be considered the slow-moving average. Red line is the one year rate of change, or the fast-moving average.

In the fall of 2008, the Federal Reserve, along with most of the world's central banks, began a massive injection of liquidity in response to the collapse of the mortgage bubble. As we can see in the chart, both measures of money supply growth moved upward. That experience caused widespread expectation of higher U.S. inflation. The same expectation existed in other countries where these liquidity injections occurred.

However, since then money supply growth in the U.S. has slowed dramatically. As shown in the chart, the one year rate of growth for the U.S. money supply is approaching zero. Expectations of U.S. inflation rising when the money supply is not growing are unlikely to be fulfilled. Current growth rate of U.S. money supply is non inflationary.

A further consequence of this meager growth rate for the quantity of U.S. dollars is that they are becoming relatively rarer. As the rate of dollar creation slows, the relative value of the dollar should rise. Expectations of the value of the U.S. dollar falling dramatically, ceteris paribus, are also likely to experience disappointment.

As the widely used trade-weighted index for the dollar is a meaningless measure in a world where currency values are dominated by financial transactions, the above chart of the dollar's value is more useful. As can be observed in that chart, the value of the dollar has now been rallying for a number of weeks. Each plot in that chart represents the closing value of the dollar on a weekly basis.

In a world where U.S. dollars are becoming relatively rarer, little reason exists for the value of the dollar to fall against other currencies. $Gold is simply another world money. Just as the Euro has declined against the dollar, so should have the value of $Gold. Those movements are the same phenomenon. Comments such that $Gold is down because the dollar is up, quite frankly, are gibberish.

Until such time as the quantity of dollars rises, the value of $Gold should change little. $Gold should remain lethargic in such an environment. It, however, may soon complete the A-wave in an A-B-C correction. With that view, a B-wave rally is possible in the next few weeks. From that move should develop a C-wave correction that takes $Gold to a Summer bottom. Dollar-based buyers should be aggressive in these corrections.

Investors in other currencies have now learned the wisdom of owning Gold. Too many continued to be invested in financial assets that clearly were priced at vulnerable levels. EU investors certainly did not expect Greece to spoil their asset values. Greece is insignificant in terms of its economic importance to the EU. Greek financial problems simply raised to the surface the EU's yet unfinished nature. Investors should not rely on currencies retaining value in all financial environments. Those living in Euros and British pounds should be buying Gold as a defense against the political and structural problems of the EU on any price weakness.

By Ned W Schmidt CFA, CEBS

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to http://home.att.net/~nwschmidt/Order_Gold_GETVVGR.html

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in