If you examine the technical chart for the U.S. dollar, it suggests a further decline ahead. In a fundamental report last July, the “IMF’s External Sector Report” estimated that the U.S. Dollar was approximately 15% overvalued putting it second only to the Saudi Riyal in overvaluation. So above all else, monitor closely the value of the U.S. Dollar and its trend.
Last July the U.S. Dollar contract was trading at roughly 93. Thus a decline of 15% from today’s 93 level would bring the dollar contract to about 79 or 80 where it did trade at in 2011; moreover it traded as low as 74 in 2011. Note that when it was trading at the 74 level, at the same time gold bullion was selling at $1800…Thus one can see that a weak dollar brings high gold prices. Many of us believe that the U.S. Dollar is absolutely the most important influence in the price of Gold bullion. Yes, the U.S Dollar moves in the opposite direction of gold bullion. And keep in mind that Gold moves in the opposite direction of the U.S. stock market. Few investors pay attention to those facts! Again, Gold bullion needs a weaker U.S. Dollar and a weaker stock market.
By the way, a weaker dollar makes American goods much more competitive in the world markets.
We could be wrong but our technical analysis suggests that the dollar will continue to decline further. That will have negative implications for the stock market and positive implications for the gold market. The dollar’s price action should tell the story.