The USD index has rallied strongly over the past few months and is now
testing the psychologically-important 100 level for the second time in 2015.
During March, a sharp rally brought the USD index to 100.04, but it quickly
turned lower and fell back to 93. After bouncing around in a range for the
past six months, the USD index has once again broken above the 100 level. In
fact, it just made a new 2015 high at 100.22.
The relative strength index (RSI) for the dollar index is nearing
overbought territory (70), but has room to run before hitting previous
highs above 80 that were reached earlier in the year. With the increased
likelihood that the FED will raise rates in December, the USD may be able to
hold above the 100 level and continue pushing higher in the coming weeks and
months.
We will be watching the dollar index closely, as the direction of the USD
is a major driver of the gold price. If 100 acts as resistance once again and
the USD index turns lower, we can expect a short-term rally in precious
metals. This type of double-top technical pattern would be a bearish
indicator for the USD dollar index and bullish indicator for gold. The
classic double top reversal marks at least an intermediate change, if not a
long-term change, in trend from bullish to bearish.
Gold is rallying today, up $7 or 0.7% to $1,064. However, the price
remains below key support at $1,072 which was violated last week. This price
level of $1,072 was the prior 2015 low that occurred in July. The recent dip
to $1,056 not only marked a new low for the year, but also represents the
lowest price point since early 2010.
This dip increases the chances that gold will test $1,000 in the near term
and could drop into the $850 to $900 price range before finally bottoming, as
deflationary forces pick up momentum. So, I am somewhat bearish in the
short-term and we have taken the necessary steps in the Gold
Stock Bull portfolio to reduce exposure and protect capital.
In the longer-term, I expect the FED will be forced to reverse course on
interest rate hikes and introduce new stimulus in order to keep the economy
from collapsing. The unprecedented levels of debt and central bank
intervention will eventually lead to high inflation, but I believe the
economy will continue into a deflationary spiral before this occurs.
With the demographic shifts taking place and destruction of the middle
class, I expect trouble ahead for the stock market and have already started
to position our portfolio to profit from this scenario. I believe
it is prudent to begin preparing for dark days ahead in the stock market,
bond market and real estate market. With geopolitical tensions
continuing to heat up and the chances of a major war increasing, it is more
important than ever than investors make some common sense preparations to
ensure they can weather the storm.
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