Gold and the Dollar: Joined at the Hip

It is now clear that, for the time being,  gold and the dollar are joined at the hip. This will continue until the dollar accelerates it’s spiral before going completely down the drain. More and more indicators are beginning to flash “red” for the dollar,  so I don’t feel we will have to wait too long to see it’s next major leg down.  The trigger could come at any time from any part of the globe, with October/ November being the outside for the dollar’s initial slide toward .72.  Gold will trade sideways with a bias down until the dollar starts it’s fall.  In the interim, gold and the dollar are joined at the hip.

THE TREND IN GOLD IS UP!

It should be noted that not once since the  bull market in gold began back in 2001, has the RSI reading dipped below the 35 level.  In general, when interpreting the RSI, bear markets are contained between the 60-20 levels on the indicator while bull markets will run generally between 80-40.  This gold market is decidedly bullish.

During a bull market, the price runs higher on strength and then will retrace but not exceed 30 on the downside before moving higher in the direction of the longer term trend before going on to make new highs.  Unless gold breaks 30 on the RSI, the long term trend is up and bullish for gold!

It is very important to keep in mind that the  gold Nay-Sayers have been predicting gold to fall since 2003 and they have been wrong since that time because the RSI index has not breached 35,  yet alone 30 which would indicate a change in trend to bearish.  They have been wrong since 2003 and they are wrong now.  Gold is in a consolidation phase of a longer bull uptrend.

INDICATORS ARE FLASHING “RED” FOR THE DOLLAR

On Wed. (7-2-09) Janet Yellen, president of the Federal Reserve Bank of San Francisco, let things slip a little when she  went further than other policymakers in assuring that the Fed is not likely to push its interest rate up in the near future.  Ms. Yellen was speaking to reporters and said, “it is not outside the realm of possibility that the central bank will let the interest rate remain close to zero for several years.” This statement is extremely dollar negative. The Fed intends to do everything in it’s power to avoid a financial collapse,  including embracing hyper-inflation through the pursuit of it’s “quantitative easing” policy.

If we still had free markets and the markets were doing their job, the dollar would be way lower today, reflecting the monetization of the debt that is currently going on.  The band aids that have been applied to the markets and the dollar will not stop the day of reckoning that is ahead. The system is completely out of control and there is no one in Washington that is willing to “stop the madness”.  When the rubber band snaps, gold will move to levels few have even considered.

ANOTHER “RED” FLASHING INDICATOR!

India Joins Russia, China in Questioning U.S. Dollar Dominance

By Mark Deen and Isabelle Mas

July 4 (Bloomberg) –Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.

The major part of Indian reserves is in dollars — that is something that’s a problem for us, Tendulkar, chairman of the Prime Minister’s Economic Advisory Council, said in an interview yesterday in Aix-en-Provence, France, where he was attending an economic conference.

Singh is preparing to join leaders from the Group of Eight industrialized nations — the U.S., Japan, Germany, Britain, France, Italy, Canada and Russia — at a summit in Italy next week which is due to tackle the global economy. China and Brazil will also send representative to the summit.

As the talks have neared, China and Russia have stepped up calls for a rethink of how global currency reserves are composed and managed, underlining a power shift to emerging markets from the developed nations that spawned the financial crisis.

There should be a system to maintain the stability of the major reserve currencies,  Former Chinese Vice Premier Zeng Peiyan  said in a speech in Beijing yesterday, highlighting China’s concerns about a global financial system dominated by the dollar.

Fiscal and current-account deficits must be supervised as your currency is likely to become my problem, said Zeng, who is now the head of a research center under the government’s top economic planning agency. The People’s Bank of China said June 26 that the International Monetary Fund should manage more of members reserves.

RED FLAG # 1: RUSSIAN PROPOSALS FOR THE “SUPRANATIONAL” CURRENCY

Russian President Dmitry Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the dollar’s future as a global reserve currency. Russia’s proposals for the Group of 20 major developed and developing nations summit in London in April included the creation of a supranational currency.

We will resume talks on the supranational currency proposal at the G-8 summit in LAquila on July 8-10″, Medvedev aide  Sergei Prikhodko told reporters in Moscow yesterday.

Singh adviser Tendulkar said that big dollar holders face a prisoners dilemma in terms of managing their holdings. That’s why I’m telling them to do this, he said.

He also said that world currencies need to adjust to help unwind trade imbalances that have contributed to the global financial crisis.

‘The major imbalances which led to the current situation, the current account surpluses and deficits, have to be addressed ‘, he said.  “Currency adjustment is one thing that suggests itself  “.

RED FLAG # 2:

Medvedev Shows Off Sample Coin of New World Currency at G-8

By Lyubov Pronina

The photo above is how the ” New World Currency’ was presented to the members of the G-8 Conference.  The next photo below is a closer look at what is to be on the gold coin.

July 10 (Bloomberg)  Russian President Dmitry Medvedev illustrated his call for a supranational currency to replace the dollar by pulling from his pocket a sample coin of a united future world currency.

Here it is, Medvedev told reporters today in LAquila, Italy, after a summit of the Group of Eight nations. You can see it and touch it.

The coin, which bears the words unity in diversity, was minted in Belgium and presented to the heads of G-8 delegations, Medvedev said.

The question of a supranational currency concerns everyone now, even the mints, Medvedev said. The test coin means they’re getting ready. I think it’s a good sign that we understand how interdependent we are.

Medvedev has repeatedly called for creating a mix of regional reserve currencies as part of the drive to address the global financial crisis, while questioning the U.S. dollar’s future as a global reserve currency. Russia’s proposals for the G-20 meeting in London in April included the creation of a supranational currency.

RED FLAG #3:

South Korea to buy gold, expecting it to replace dollar.

Bank of Korea to Buy Gold for First Time in 11 Years

From Dong-A Ilbo (East Asia Daily)
Seoul, South Korea
Saturday, July 4, 2009

The Bank of Korea has not purchased gold for 11 years but is expected to go on a gold buying spree, as the world’s central banks have bought the commodity since the global economic erupted in September last year.

A Bank of Korea official said yesterday, “The bank has begun to set up a plan to manage foreign exchange reserves for next year. It has also closely watched central banks in other nations and trends in the global gold market. Given the changing global financial environment, the bank’s management plan is critical.”

According to experts, the comment implies that the bank plans to buy gold soon. Korea has the world’s sixth most foreign exchange reserves but ranks just 56th in gold holdings.

China, which has the world’s largest foreign exchange reserves, has secretly bought 454 tons of gold over the past six years. This has intensified global competition to obtain more gold.

The amount of gold bought by China over the period is 32 times larger than the Bank of Korea’s gold reserves. The world’s central banks have rushed to buy gold, since they believe the metal will replace the greenback when the dollar’s status as the world’s leading currency weakens.

The bank has said nothing officially, simply saying, “We have made no decision on the purchase of gold and cannot say if we have considered it.” It will finalize by November its plan to manage foreign exchange reserves for 2010, but experts forecast that the bank will have no choice but to buy gold soon.

Next up, we look at Peter Schiff’s take on the markets, the economy and the dollar. This video was first posted on July 1, 2009, but the it applies to what is going on now and into the future  as well.

Finally I would like to leave you with ten good reasons why gold is going up this year.

More Gold Market Analysis:

• Of Gold, The Dollar, Russia, China and Vending Machines!
• Barbarians At The Gate!
• Buy Gold Coins, Bullion to Hedge Dollar Drop
• Putin Leads World Financial Revolution!
• Gold and the Dollar