The Dollar and Equities Will Plunge Together – While Gold Spikes
The comments above & below is an edited and abridged synopsis of an article by Ron Rosen
The dollar has been falling lately, which wasn’t expected given that the Fed was the only major central bank that’s raising interest rates. Higher yields on dollar balances should have attracted foreign capital to Treasury paper, putting upward pressure on the dollar. It didn’t happen. The dollar is down about 10% since the Fed started tightening.
Stocks, meanwhile, might reasonably have been expected to fall, as their dividend yields become less attractive relative to rising risk-free fixed income returns. That also didn’t happen. Equities are now at record levels.
The S&P 500 and the Dow accompanied the Dollar Index on its huge corrective zig-zag rise. They will accompany the Dollar Index on its coming collapse.
Gold bullion, as representative of the precious metals complex, has bottomed and completed its first minor rally. Its explosive move up waits in anticipation of the Dollar Index crossing the 91.88 level.
The XAU, as representative of the precious metal shares, is in the same bullishly explosive position as gold bullion.
If this happens, there will be various fundamental explanations (to go with the technical one outlined above), including political turmoil in the US and abroad, divergent central bank monetary policies, and rising geopolitical tensions in Asia and the Middle East.
But the truth will be simpler: This bull market has continued for too long on the back of artificially easy money, something that is unsustainable. It had to end eventually, and now is that time.
Almost certainly, a currency/stock market crisis will be met with a breathtaking set of central bank asset-buying programs. QE was big, but the equity, corporate bond and real-estate buying binge that comes next will put it to shame.