What is the Dollar Saying ?
Travel plans were postponed because of weather so I will take the opportunity to talk about the dollar. For most investors the dollar has moved higher, while kind of under the radar, some 19 percent since the end of March 2008. What is most important is that a big resistance area exists in the DX (dollar index which we follow) about 6 percent higher from today’s level (resistance around 93). So far most market players have ignored the rise because the prevailing opinion is that this is a knee jerk kind of bounce that will not hold, and the important thing is to be long gold because inflation is going to come back and gold is always the opposite of the dollar. For the past four months both the dollar and gold have gone up together, interesting but unlikely to continue for long.
When one goes back to the recent history of the dollar, it started going down when the Bush administration took us into Iraq and continued down in spite of all his Treasury Secretaries espousing a “Strong Dollar” policy. In our opinion the dollar started going up last March when it became clear to the world that there was going to be a change in Washington, either Clinton or Obama would be the next President. So we are seeing the dollar setup and at some point in the next few months the dollar is going to breakout on the upside and move towards a 116 DX objective, some 60 percent above the March 2008 low.
Another cog in this dollar/gold story is the Stock Market/Gold relationship. As we mentioned yesterday the economic decline started in 2001, that was when the stock market / gold relationship hit a high and as of yesterday was down 81 percent from that high. That decline, in our opinion, is over.
Our conclusion on all of this: Stocks are bottoming, the dollar is starting up, and gold is topping.