The Dollar Rally is the Key
QUESTION: It seems as though the rally in gold is short covering? If it is, and all bottoms start that way, why is this not the bottom?
Always read your work with great interest.
Yours truly,
JB
ANSWER: Major lows are always short-cover rallies, but they are much more dramatic. Here we had gold struggling to rally as it made a dead cat bounce when oil was making new lows. That showed the cycle was indeed higher, but gold was flat while oil was crashing. What moves sideways during an up cycle and what will not rally moves lower with more gusto when the cycle turns back down. In this case, gold held and finally began to exceed the reversals only when the other commodities in the sector completed their cycles. Gold had to wait.
PRICE is entirely separate from TIME. We have been warning for years that we should see a dollar rally that may even exceed the 1985 high. The yuan made the 19 year low in 2013 and last year we had an outside reversal to the upside, showing that the dollar was indeed in an uptrend. The crack in the euro, the pound, and the C$ have combined to confirm that forecast of the trend.
So what we need to complete here is the dollar rally. There is about $9 trillion in dollar short positions from emerging markets. Clients around the world have been calling us in for consultations, as usual, since the number one creator of havoc is currency. More than 75% of corporate losses have to do with currency.
We have not yet felt the pain needed to create the major global shifts for the future. The TIME is not right. It appears to be the second benchmark. If you look at these markets from a connected basis, it becomes easier to see the trend. Our forecast for a dollar rally is critical to the outcome as a whole and we are seeing the subtle pressure building, as with China’s devaluation. A dollar rally will create global chaos and that is the key to political change. If you are familiar with charts, our Dollar Index back to 1900 shows that the dollar is still alive and well with a new spike high being within the realm of possibility.
The Flight to Quality – Right on Target
China’s devaluation of the yuan has helped to complete the cycle for the bubble in government. One of the major repercussions of the turmoil caused by China’s currency move has been that investors are running for the flight to quality as we have warned. German 2yr bonds have hit new record lows with negative yields edging down below -0.29%. They are now paying governments just to hold their cash.
China & Gold
The gold promoters are trying to claim that China is understating its gold reserves because it is trying to confuse the markets about their clear ambitions to make the yuan a world reserve currency to challenge the hegemony of the U.S. dollar. The rally in gold was technical and a closing above 1109 should spark a rally to retest the Monthly Bearish Reversal it selected at 1155.
Most of these theories are so off the planet that it is hard to imagine that such analysts are actually that stupid. There is a major crisis unfolding in the reserve currency class that people are just oblivious to these days. The dollar is the ONLY game in town and it would not mean anything even if China surpassed the U.S. in gold holdings. The ONLY reason the dollar is the reserve currency is simply because it is a deep market into which institutions can park money. If China does not have debt where people are comfortable parking money, then the yuan cannot displace the dollar. This is precisely the problem as to why the euro is a failed currency. The EU refused to consolidate the debt so there was no single entity in which capital could hide. The crisis we are heading into is eventually a reserve currency crisis with a LACK of a sufficient level of U.S. debt to facilitate the world. There is a major gap in central bank reserves with a declining euro among central banks. This is why even the Fed has been buying U.S. equities. There simply are not enough assets for the entire world to hide in the USA.
The excuses painting China as understating their gold reserves to trick people into buying gold is just another ploy in a never-ending battle to see the world only through the eyes of a single commodity. China would like to have the yuan accepted globally but not replace the dollar as a reserve currency. China has benefited by selling to the USA and they have preferred to see a strong dollar rather than a weak one. So backing the Yuan with gold makes no economic sense from their perspective. Gold is a hedge against governments. It does not require wild speculation to desperately convince people to buy it.
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