Euphoric Dollar Vexing Gold
The comments below are an edited and abridged synopsis of an article by Adam Hamilton
The euphoric US dollar’s epic parabolic surge over the past six months continues to sorely vex gold. The dollar’s vertical march spawned heavy gold-futures selling, slamming gold. The lower gold price has scared away investors, leaving gold languishing despite raging inflation. This absurd market anomaly can’t last, and is overdue to reverse.
Hamilton discusses gold’s performance in the 1970s and 1980s; gold over the past six months; the US dollar over the past six months; competing currencies; the USDX (heavily overbought); the Fed and rising interest rates; the ECB, the Bank of England and the Bank of Japan; Russia and Ukraine; and the CPI and inflation.
The bottom line: The euphoric US dollar has sorely vexed gold this year. The dollar’s epic parabolic rally to lofty secular highs on extreme Fed tightening and other major currencies’ woes unleashed huge gold-futures selling. That slammed gold sharply lower despite an inflation super-spike raging out of control. But the resulting technical and sentimental extremes in both the dollar and gold are overdue to reverse hard.
This past half-year’s massive US-dollar buying and gold-futures selling is petering out, exhausted. That portends huge mean-reversion-overshoot reversals over coming months. Big dollar selling and big gold buying will cascade, feeding on themselves as traders chase that strong momentum. Given this miserable inflationary backdrop, the debased dollar needs to head way lower while gold soars way higher.
