Minor Bear Market Rally For Greenback?
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| Topic: Other — March 7th, 2008
A rapid decline in the US dollar is doing wonders for our gold stocks, but are we going to see a minor bear market rally in the greenback?
Regardless of the atrocious fundamentals behind the US dollar, the greenback does tend to bounce back slightly when it becomes technically oversold.
The technically oversold situations are shown on the chart below, as are the minor rallies that usually follow. Click on the chart thumbnail below to enlarge.
Of course not every oversold situation produces a rally but in most cases this is what has happened.
The USD has dropped sharply in the last month and is now entering oversold territory. We think that we are in for a minor bear market rally in the USD, but this is not a major concern as any rally in the USD is nothing more than a dead cat bounce and doesn’t affect the long term downtrend in this fiat currency.
We expect to see a larger bear market rally in the next two months which will probably coincide with the “sell in may and go away” correction that we believe is coming in precious metals.
Should gold bugs be concerned of a possible minor bear market rally in the USD? Absolutely Not.
We see a minor bear market rally in the US dollar in the short term, which will simply take the fizz out of the recent spike in gold and gold stocks.
For the intermediate term we think precious metals and commodities in general will experience a large correction in the spring, as the seasonal selling once again takes its toil on the sector. This seasonal selling will coincide with a larger bear market rally/consolidation in the US dollar.
The long term trend for the greenback is still down, down, deeper and down, which means we are going to see sky high gold prices in the coming years, with gold stocks trading somewhere near the moon.
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Au, yes, but Au stocks? So far, they’ve lagged. When you make predictions like that, you should back them up with hard data.
Comment by Neil Bishop — March 8, 2008 @ 12:35 am
Neil, Could you elaborate for us please?
Comment by Gold Prices — March 8, 2008 @ 9:45 pm
Shall try to find something better than this anecdotal evidence: today, for example, all my juinor and mid-cap Au and Ag companies are amply down.
A lot of commentators on Kitco, 321gold etc have been dwelling on that, and have been recommending abandoning exploration and feasibility and like companies in favour of producers or near-producers. Bill Murphy (MIDAS of le metropolecafe.com) sent a message to former subscribers claiming that the juniors would join the bullions and the large caps in soaring, but that assertion, in what was essentially an appeal to ex-subscribers to re-subscribe to lemetroplecafe, has to be taken with a grain of salt: it’s part of a self-serving ad.
Again, I promise I shall try to do better–all I’ve given is hearsay, not hard evidence–but the consensus on other sites–lemetropolecafe.com, 321gold.com, etc., seems junior-negative. Cheers, Neil (I was already a subscriber to lemetropole.com, so should not in fact have received that “Please re-subscribe” ad.)
Comment by Neil Bishop — March 11, 2008 @ 12:26 am
Neil,
These gentlemen may well be correct after all they have been in this business a long time. However, it does appear to us that those companies who are producing move more with the price of gold then those who have yet to find it. Just our opinion though!
Comment by Gold Prices — March 16, 2008 @ 9:03 pm
Gentlemen—we are in UNCHARTED TERRITORY and therefore (in my humble opinion) historical trends etc do not apply. I see little point in ‘reading’ charts which in fact can be interpreted any way you want. You can draw a line from any one high or low to any other to prove any point you want to make. Charts are only useful in ‘reading’ the history, not the probable future of stock movement.
Comment by bobi — March 17, 2008 @ 6:50 pm