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Sometimes it pays to step away from the daily gold stock price action
and remind ourselves why we are in a MASSIVE Gold Bull Market.
Just how significant is the 80 level on the Dollar Index?
Take a look, you decide?
Gulp!
The Dollar Index (a trade weighted index of the US Dollar vs. other
major currencies) is dangling off a cliff.
There is nothing but fresh air under 80. Never in the history of the
currency has it been breached.
Some say that the composition of the index has changed and based on
the old weightings it would already be underwater. Ok, maybe so. But traders
act on the charts and the above chart is saying that 80 may have been tested
one time too many and may very well fall.
In intermarket parlance there is a positive
correlation between Bond Prices and the US Dollar. That is, if the Dollar
moves lower, Bonds move lower (interest rates higher). Simple to trade you
say? Aaahh but there’s a catch. There is a
significant and changing time lag to account for. The Dollar above made its
recent highs around 2002. Interest rates only made their ultimate lows in
mid-2003.
As time moves on, a continued deterioration in the Dollar will pull
interest rates much higher (despite the shenanigans of Asian Central Banks
recycling Dollars into US Bonds and keeping rates artificially low). Market
forces ultimately win out and the trend is now definitively towards higher
interest rates.
The counter balance for paper financial assets such as the Dollar and
Bonds is real tangible assets. Preferably one’s that are not debt
financed (Real Estate) and not economically sensitive (Oil and Industrial
Metals) and that leaves our favourite – Gold!
Gold’s major use is as an investment vehicle with a AAA+ credit rating
– Gold Bullion that is. Gold is best viewed as the anti-Dollar or a
foreign currency with no sovereign home and whose supply cannot be
manipulated by the dangerous whims of politicians.
Sometimes it
pays to disregard the gold
price today and focus on the one incontrovertible truth. Gold is in its
biggest Bull market in over 20 years because the US Dollar is mired in a
secular bear market period.
More commentary and stock picks follow for
subscribers...
Greg Silberman CA(SA), CFA
greg@goldandoilstocks.com
February 15, 2007
I am an investor
and newsletter writer specializing in Junior Mining and Energy Stocks. Please
visit my website for more free articles and analysis
Click here: http://blog.goldandoilstocks.com
This article is
intended solely for information purposes. The opinions are those of the author only. Please conduct further research and
consult your financial advisor before making any investment/trading decision.
No responsibility can be accepted for losses that may result as a consequence
of trading on the basis of this analysis.
_______________________________________________________________________
This
article is intended solely for information purposes. The opinions are those
of the author only. Please conduct
further research and consult your financial advisor before making any
investment/trading decision. No responsibility can be accepted for losses
that may result as a consequence of trading on the basis of this analysis.
Information contained
herein is obtained from sources believed to be reliable, but its accuracy
cannot be guaranteed. It is not intended to constitute individual investment
advice and is not designed to meet your personal financial situation. The
opinions expressed herein are those of the author
and are subject to change without notice. The information herein may become
outdated and there is no obligation to update any such information. The author, 24hGold, entities in which they have an
interest, family and associates may from time to time have positions in the
securities or commodities discussed. No part of this publication can be
reproduced without the written consent of the author.
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