Monday, September 14, 2009
Executive Summary
- Gold had the highest weekly close ever
- UN calls dollar trading a “confidence game”
- US fiscal deficit breaks all records, keeps accelerating
- Brazil, Russia, India, & China (BRICs) have dollar concerns
- China promotes owning gold to its citizens
- Examining US dollar reserve currency status (again)
Normally I like to switch up my analyses each week, but last week’s look at gold already needs some updating, due to a few important occurrences. There was a blistering array of developments and cross currents this past week that make me suspect we may be entering a new inning of this game.
The first of these is that gold just had its highest weekly close ever:
Of course, this is not an inflation-adjusted number. Gold hit $850 back in 1980, and if we bring that number forward into today’s dollars, it would equal more than $2,200.
However, a brand new all-time highest weekly close, even if not inflation-adjusted, is a matter of some importance for the people who watch such things. Heck, nobody ever inflation-adjusts the Dow Jones for comparison purposes, and I don’t hear much complaint about that oversight, so perhaps we can skip it from now on for consistency.
Looking at a slightly longer-term chart of gold, we can see that the breakout we noted last week has carried on and gone a bit further (like a good breakout should):
Part of the reason for gold’s advance is that the dollar has (again) been faring poorly. However, as we can see in the chart below, the dollar is approaching what I would expect to be a heavy band of resistance right around 76.
Also, the dollar appears to be oversold (MACD, below), or approaching oversold (RSI, above), and is therefore due for a bounce. If it happens, then this is relatively normal market activity; if it does not, then there’s potentially something else at work. That is what I want to explore here.
This week we saw a lot of fascinating and seemingly important information coming from all quarters, which, if I could sum it up, would read, “The rest of the world is getting really anxious about the fiscal recklessness of the US.”
Questioning the Dollar
The opening salvo was launched on Monday with this very boldly worded statement from a UN trade conference:
UN Says New Currency Is Needed to Fix Broken ‘Confidence Game’
Sept.
by former_user