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Monday, December 21, 2009

The Dollar Breakout and the Gold Wall of Worry

Followers of the Forex markets will have seen a decisive trend reversal on the part of the dollar last week. EURUSD has definitely broke its upward trend as has AUDUSD and USDCHF has reversed its downward trend. Rumblings in Greece or debt default can be seen as a cause and many are anticipating a stock market downturn in the new year accompanying an ever strengthening dollar as money looks for safe havens and the market clamors for $$$ to pay back leveraged positions.

So what about gold. The fall back from the $1224 high has been met with much pessimism amongst commentators as people fear that any repeat of last years credit collapse will bring a collapse in the price of gold as people try to sell anything and everything to pay back leveraged positions.

Only time will tell but one thing that has been mentioned a fair bit is that Bull Markets climb a wall of worry and that Bull Markets manage to take as few people with it as possible ( Richard Russell). Before we reached the high of $1224 there was nt much optimism in the gold market as many newsletter writers were predicting a collapse down to $800 or less and there is even less now on the pull back so this could be a bullish signal.

A debt default in Greece could cause similar sovereign defaults in other parts of Eastern Europe shaking the banking system to its very core. Gold may be seen as the only safe haven as people question all sovereign debt and the banking system - as happened in the 1930s

The Indians and Chinese have shown a large willingness to buy gold at $1040 so any rush of gold into the market could be met with their buying.

In last years sharp gold fall yes you suffered if you were dealing in $$$. But gold did not really drop far for very long against the Pound and the Euro - which will most deifintely suffer in any credit collaspe.

Gold is insurance - so yes it may drop to $650 but for those who have the long term in mind, who see it as insurance,who know the scenarios they are insuring against this should be of little consequence.


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