Hamilton, well worth the read and he is a gold bull.
safehaven.com
<As the US dollar appears to be so short-term oversold today, this sharp countertrend bear-market rally in the American currency could launch at any time. Global public sentiment against the dollar is unbelievably negative at the moment as the widespread media coverage attests, and the financial markets abhor extreme situations where everyone piles on one side of a trade. The contrarian play these days, the bet that very few are willing to make, is that a dollar bear-market rally is approaching.
The implications of such a short-term dollar mean reversion are very obvious for currency traders. Dollar shorts can cover and realize their profits and they can go long the dollar or short other competing currencies that are near long-time or record highs, like the euro. The professional forex folks are well aware of this and I suspect that a short-covering frenzy will be the initial buying spark that ignites the coming countertrend dollar bear-market rally.>
<Starting with gold, since it is easiest to think in bull-market terms, there have been several times in the past few years where gold has touched its white 200dma line above. Not surprisingly, all of these gold 200dma encounters proved to be absolutely outstanding buying opportunities, for both gunslinging speculators and long-term investors alike. If you see gold approach its 200dma while the long-term fundamentals supporting its Great Bull remain steadfastly entrenched, then you can buy gold and gold stocks with reckless abandon.
The dollar bear, on the other hand, exhibits the same behavior even though it is inverted. The closer that the dollar retreats to its overhead 200dma during its countertrend rallies, the higher the probability that a fantastic moment to add new dollar short positions has arrived. ﾠWhile there has only been one major 200dma kiss in this dollar bear so far, early September 2003, it proved to be a phenomenal time to short the dollar and ride this recent brutal dollar downleg that is utterly dominating financial news today.>
<But in the past couple years, right after these interim Relative Dollar lows and Relative Gold highs were reached, in the months following the gold price made a sharp pullback. Gold entered countertrend corrections, bleeding off overbought short-term speculative excesses by heading back down to converge with its own 200dma. If you bought short-term speculative positions in gold near any of these Relative Dollar lows and Relative Gold highs, you would have lost money over the short-term.
Now today gold speculators face these same short-term bearish omens once again. Gold has soared in recent months while the dollar has plummeted. Gold is approaching high levels relative to its 200dma while the US dollar is approaching low levels relative to its own 200dma. In recent years these very Relative Dollar interim low levels have heralded the negative short-term-sentiment extreme that sparked a strong countertrend bear-market rally in the dollar.
But when the dollar rallied off its interim lows to converge with its 200dma, gold was naturally hit hard and mean-reverted back down towards its own key 200dma. As the chart above reveals, both gold and the dollar are stretched almost as far away from their respective 200dmas as they have been in their entire major long-term trends to date, and a temporary mean reversion and short-term countertrend move is inevitable sooner or later for both of these elite currencies.> |
