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Strong Dollar Pressures Gold

September 25, 2014

Mary Anne & Pamela Aden – The Aden Sisters

Gold stayed under pressure this month. And the third quarter is shaping up to be a negative one. So what’s going on?

This past month, we’ve seen the U.S. economy improve, which has kept investors running to the stock market.

It’s also fueling beliefs that higher U.S. interest rates are coming sooner than expected. This has been pushing up the U.S. dollar. And with Europe also needing to continue their stimulus and keep interest rates low, it’s adding even more fuel to the stronger dollar. That in turn is keeping downward pressure on gold. And it’s causing a decline in the demand for gold.

Global tensions kept gold from falling more. And as you can see on Chart 1, the dollar index has risen more than gold has declined.

Nevertheless, money managers are trimming their bullish gold positions: Open interest in NY futures and options is near its lowest in 5 years.

Uncertainties are abundant

But with so many uncertainties in the world today, we could see the markets turn on a dime.

Yellen continues to reiterate that lower rates are here to stay until we see better jobs figures. She insists there is still slack in the labor market.

Plus, considering the faltering world economy, global tensions, the monster debt problem and unprecedented liquidity….. anything is possible. The U.S. bombing in Syria is just the latest example.

All this means is we have to be prepared for change, and go with it when it happens.

This is why we place importance on our charts. They help to see changes or subtleties upcoming. They also tell you when to stay with a trend.

Many have compared gold’s current three year bear market with several major declines of the past.

The bear market of the 1980s-90s was the worst one. Its loss was not so much of a price loss than it was in the seemingly forever lackluster market.

Notice the comparison between the last three years since the September 2011 peak to the start of the major bear market in 1980 (see Chart 2). As you can see, the loss is less today but the movement is similar.

The point here is, will gold soon resume a bull market in the upcoming years, or will it be similar to that lackluster period when gold essentially moved into a sideways band? Back then, gold stayed near or above the June 1982 lows with a cap at $500 for more than another decade.

We think this is unlikely in today’s world, but it’s always good to play devil’s advocate.

For now, the December lows will tell the story and that’s what we’re watching.

If gold can stay above $1193, the December low, it’ll continue building a huge bottom, which will likely be a springboard for higher prices.

If the December lows are broken, however, it’ll be a very bearish sign.

Sep 24, 2014
Mary Anne & Pamela Aden
email: info@adenforecast.com
The Aden Forecast

Discussion
7 Comments
    CFS
    Sep 25, 2014 25:26 AM

    Or from a non-US Centric position……
    Or it could be simply that what happens in Europe is more important than what happens in the US.
    The US dollar index is approximately inversely proportional to the Euro.
    So Gold has stayed approximately constant in Euro terms.
    Maybe the US is becoming irrelevant.
    (Perhaps the Big Zero’s wishes are coming true?)
    Just thinkin’.

    Sep 25, 2014 25:26 AM

    December low was 1182.

      Sep 25, 2014 25:34 PM

      The low monthly close for December was 1204. The low weekly close was 1202. The low daily close was 1187. The absolute low was 1181.40.
      The low daily close for the Dec.’13 futures contract was 1195.
      Don’t know what 1193 means to the Adens.

    Sep 25, 2014 25:52 PM

    Hey ALL:
    LUV these analysts…:)….The dollar might be strong….NOW…but like the weather it changes…ask bout the dolllar “tomorrow”…betting on LONG-TERM dollar strength wil be like…’pi___g in the wind – not recommended….:)

    Sep 25, 2014 25:12 PM

    Nothing can grow forever. The dollar is overbought in the weekly and daily charts. A rebound in gold is iminent!!!

    Sep 25, 2014 25:17 PM

    According to J.Sinclair the Russian sanctions are also putting a wet blanket on the Euro.

    Ken
    Sep 25, 2014 25:47 PM

    Nice to see the dollar haters are still alive..
    There has to be someone to buy the top next year as gold bottoms at 950 or so.

    It’s like you said 4 years that the US stock market was a goner as you watched gold disintegrate ad stock go up 300%

    Why not simply open your eyes? It’s ok we are all wrong sometimes….

    CFS your comment clearly shows who little you understand about where Europe is…

    It is dissolving in front of your eyes and you say the US is irrelevant…. The Euro is crashing because 3 of the 4 big countries are bankrupt and the last one Germany now tipping over..

    Holly smokes the US is the only game in town now, that is why USD is exploding. People are running to buy an asset that is in short supply..

    Sitting on a dead cow doesn’t mean you have freezer full of meat my friend….
    You eventually have to act