We have updated our privacy policy and terms & conditions. Find out more here.

We'll See Stronger Dollar, Weaker Gold Through Year-End

By CommoditiesAug 28, 2013 04:12AM GMT Add a Comment
We'll See Stronger Dollar, Weaker Gold Through Year-End
By   |  Aug 28, 2013 04:12AM GMT
Share with a Friend
Thanks for sharing
Emails have been sent to:
To send more emails click here

Being one of the few out there who sells gold and has called gold lower since September of 2011 when the dollar hit bottom, and having called a summer rally most recently in June, I turned cautious on August 12th for short term traders, expecting a bounce in the dollar. The double top for gold has turned into an extended formation in the chart as seen below, and I think we are about at the highs based on the price action yesterday.

We also saw the gold mining stocks get hammered from their intra-day highs yesterday, despite the price of gold not pulling back that much.


In this article I will show the dollar and gold charts again and try and predict short term price action in gold, and also explain more on what’s going on with the dollar that will effect gold’s price over the short term. Lastly, I will lay out my reasoning as to why gold could fall into the end of the year and why January may just be a stellar month and 2014 and beyond, stellar years. But we have to let this deflationary credit contraction play out a little longer.

Positives for Gold Over the Short Term

1. We are fast approaching $17 trillion in national debt.
Gold 2
Gold 2

Congress is set to battle it out on increasing the debt limit from its current agreed upon limit reached in May of $16.7 trillion to some higher number like Congress always does. We are scheduled to run out of money to pay our bills mid-October, according to Treasury Secretary, Jack Lew. This lack of caring about debt should be pushing gold much higher than it already has been over the past 4 years, yet, since we have had a bit of a rebound in the economy, a higher stock market and a Federal Reserve propping everything up, the debt limit is ignored.

Senator Barbara Boxer even went so far as to introduce a bill to Congress dictating that those in Congress won’t get paid unless they raise the debt ceiling. Nancy Pelosi earlier this year stated she wants President Barack Obama to use the 14th amendment and raise the debt ceiling anytime he wants by Executive Order. What is the government’s FICO score anyway? Oh, that’s right, they don’t have to play by the rules everyone else does.

2. September is typically a good month for gold.
Gold Average
Gold Average

The 2013 average price for May was $1,413.50 and yesterday’s price was $1,418.17. In 2011 and 2012 we had nice moves up in gold from May through the end of September. While have had a nice rebound from the bottom for gold. My research shows me that no matter what September brings, we will head lower through the end of the year.

3. Fear factor in regard to Syria.

This is of course a wild card and more oil related, but any trouble in the world typically causes gold to rise a bit. It is simply fear of the unknown that causes this. We saw it with the turn of the century in 2000. We saw gold end the year up in 2007, 2008 and 2009 with the financial crisis upon us. I don’t see anything long term going on in Syria like we had with Iraq and presently with Afghanistan. This is a wait and see issue as to what Russia might do since Syria is their ally. It’s still a good reason to be in gold for insurance.

4. Weaker dollar overall. There is still a chance the dollar may fall a bit lower on the index, to the 80.50 range, but this would still be a double bottom. If for some reason we were to break 80 on the index, then I would want to be in gold. I just don’t see that happening.
US Dollar Index
US Dollar Index

Negatives for Gold Over the Short Term

1. I see 80 as the long term line in the sand the dollar will bounce off of and head back to test the highs near 88 as the longer term chart below shows.
US Dow Index 2
US Dow Index 2

2. Despite all the above debt issues, the S&P in June gave the U.S. Credit Rating a label of “stable,” up from “negative,” but left the rating at AA+. The S&P still gives Australia a AAA credit rating, so they still haven’t learned their lesson. They do give Spain a BBB-, which ironically is the same rating as both Iceland and India. The PIIGS (Portugal, Ireland, Italy, Greece and Spain) average as a group is less than BBB. Despite all this negativity, of late, the euro has become stronger versus the dollar. This is only because of the leaders of France and Germany banding together with Greece and the other southern European countries in trouble. So far, it has worked. But sooner or later the loans to Greece and other factors that have helped temporarily prop up the euro will have to come to roost. The problems though, may start in Japan or China in their banking system. Everyone is interconnected these days and that’s what led to multiple bailouts here in the U.S. by the Fed, providing the main reason why you should own gold as insurance.

3. Traders back from vacation (whipsawing the markets). We saw some extreme volatility in the gold and silver mining stocks yesterday, with them up big early as a result of the gold price being higher, and then down big late. What would cause such a downturn if not speculation that the tide might be shifting? You can see this volatility in the Direxion Daily Gold Miners Bear 3X Shares ETF (DUST) and the Direxion Daily Gold Miners Bull 3X Shares ETF (NUGT) below.
Daily Gold Miners
Daily Gold Miners

Daily Gold Miners
Daily Gold Miners

4. Deflation vs. Inflation
The debate still goes on about inflation and deflation with most gold bugs not understanding what they really represent. As many of you know, I have been in the deflation camp.

As Boomers cut back heading into retirement, it will be an additional drag on the economy. Their views are already negative on the economy. With no real velocity in the economy (defined as money circulating in the economy), things come to a standstill. This is deflationary action.

Housing may also be close to topping. Think of what happened to cash for clunkers when the government stopped stimulating. The Auto industry contracted.

While many will look at inflation in the everyday things you buy, the CRB Index has actually been declining since about the time the dollar started climbing in 2011.

Side Note: Oil of course is a different issue. I have always liked oil and will be recommending investments in oil for the simple reason you can count on the U.S. to be meddling somewhere, especially the Middle East. It seems this is true whether it is Republican or Democrat leadership.

With China GDP falling, expect there to be pressure on commodities as a whole. While consumers may still be spending in China, they are the last to know, same as the consumers who were borrowing on their houses here in the U.S. precipitating the last financial crisis. China seems to be following the same path. Yet we have done nothing but have our credit grow larger and watch our banks and corporations play the derivatives market like never before as seen in the following graph and table. The Dodd/Frank Financial Stabilization Act has done nothing but take us back to where we were. The data for the chart below can be found here in the Flow of Funds report.

F.1 Total Credit Market Borrowing and Lending
Total Credit Market
Total Credit Market

To sum this section on deflation up, the amount of derivatives were contracting in 2009 and 2010 with the financial crisis ending the lives of some corporations like Lehman Brothers and seeing others swallowed up by larger players with back room deals with the Fed. The Dodd/Frank bill was passed and everyone learned their lesson right? NO – what has occurred is the Too Big To Fail (TBTF) banks now know they have a life-line in the Fed and are doing whatever they want. Why? Because the Fed is the entity that handles oversight of the Financial Stabilization Act! The Wolf is in charge of the Hen House and guess who the Hens are? This is my number one reason for having possession of gold as insurance yet you never see anyone write about it.

So even though this is under the “negatives” for gold short term, the derivatives issues is still a longer term (probably starting next year) recipe for disaster for our entire financial system.


I didn’t address QE as the entire last year when the Fed was implementing QE, the price of gold fell, and currently with talk of tapering, the price of gold is rising. The dollar is what I look at for the short term. At some point, as I have said, I will become dollar bullish and gold bullish.

As I state in many of my articles, they way to invest in gold and silver is to dollar cost average into a position.

We'll See Stronger Dollar, Weaker Gold Through Year-End

Related Articles

T. Marc Schober
U.S. Poultry Faces Devastating Blow
By T. Marc Schober - Apr 24, 2015

Keep Your Eye On Poultry Prices. The H5N2 virus, also known as bird flu, has infected nearly 8 million commercially raised chickens and turkeys in 13 U.S. states, according to the ...

Mike Paulenoff
Sugar’s On The Move
By Mike Paulenoff - Apr 24, 2015

The iPath Bloomberg Sugar Subindex Total Return ETN (NYSE:SGG) is pushing up toward a test of its prior rally peak at 33.94, which, if hurdled and sustained, should trigger upside ...

Forex Million
Gold Technicals In Sideways Trend
By Forex Million - Apr 24, 2015

Main scenario: XAU/USD is trading along a sideways trend with target on support level 1187.An uptrend will start as soon, as the pair rises above resistance level 1193, which will ...

We'll See Stronger Dollar, Weaker Gold Through Year-End

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Add Chart to Comment
Are you sure you want to delete this chart?
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?

Successfully Reported

Thank you. This comment has been flagged for a moderator.
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data .

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.