When money flows out
of the domestic markets it attempts to find other places to rest. Both bonds and precious metals (gold) have
benefited from that. Gold has been a
swing opportunity in the last couple of weeks, primarily because the US Dollar
has now had 3 weeks of pullback (as the Euro firmed).
(Changing relationship of Gold to the US Dollar)
(The long run of gold)
In these charts, it
is worth noting that the relationship between Gold and the US Dollar frequently
changes. Currently, there is an indirect
relationship between them. The change in
this relationship is highly correlated to the Euro's direction to the US
Dollar.
I would also add here
that the decade long run of gold will eventually run out of steam and correct
itself. I am in agreement with Tim
Knight on this. Given the relationship
to the Euro, if the Euro does blow up so does gold (e.g., the current bubble
would burst). However, until and if that
happens, it is worth noting that other commodities have benefited from the
shift in the Euro and USD.
(Notice pivot and change)
I would summarize
that:
– I watch these
relationships on a daily basis to monitor the money flows of the markets.
–
As money continues to flow out of equities, I look for periods when flows into
gold and bonds.
– A positive Euro
(and a declining US Dollar) remains good for gold longs here.
– Commodities are
benefiting from the rotation out of equities and the weakening US Dollar.
(Editor's note: This post was submitted over the weekend…here is FIC's comments in the comment section: just a comment about this post …. I wrote it on Saturday before the
Euro pulled back …
today it looks like gold will take a hit
because the Euro has weakened again … )
