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Re: ERX, GOLD, USD

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dalcindo Member Profile dalcindo  
Saturday, October 02, 2010 9:35:17 AM
Re: dalcindo post# 2064 Post # of 2145 
Re: ERX, GOLD, USD

Hi, 3x!

The answer to whether ERX is triple-topping is a difficult one to answer.

Energy bears an inverse correlation with the US Dollar, such that the weaker the US currency gets, the higher the energy sector ETFs turn.

Similarly, Gold has been on the rise for quite some time by now, on the back of the US Dollar, with which it maintains an inverse relationship for historical reasons.

The question here may be: Which one drives the other? I believe that the answer will always be that the US Dollar will continue to play as the main driver behind moves in the gold and energy sector (and this should remain true as long as the US Dollar keeps its trade hegemony. Note here too, that we are letting world-wide economies buy and store US Dollars in US bank against products and services that we buy from them, hence maintaining a trade deficit that is key to letting countries own the US dollar. In a word, maintaining the US trade deficit represents one of the most important geopolitical tool upon which we depend to keep a strong Dollar relative to other economies - But, that's another discussion all together). In the first one, gold keeps a safe-haven property against a falling dollar, while energy commodities, being paid in Dollar, will maintain a same close correlation.


The question that I am most concerned about is: How long is the US Dollar expected to run its downward course? I am finding it confusing that such a plethora of pessimistic fundamental data coming out of Europe (here, I am referring to the faltering economies of the eurozone; defaulting of the Ireland banking system; unrealistic deficit solution plans in Italy, Portugal, Greece, and Spain; as well as recently lackluster unemployment data from Germany), can still carry the Euro in such a persistent advance.

My safe-haven currency is charting: I trade my ignorance of a complex World against the simplicity of trends to get clearer answers. Based on the chart below that I constructed way back (Septemder 2008!), I am estimating that the current decline is likely to find pause - and probable reversal - at the bottom of the bullish channel. However, this is not occur until the US Dollar index reaches an approximate value of $77.00 to the current $78.00. If the channel fails, then we are in for a serious decline, IMHO.

In any case, to answer your question, I believe that since the US Dollar is nearing its monthly bottom (at the lower border of the channel in the chart below), a reversal for $ERX is coming soon.

As far as Gold, there are two inherent limitations that are worth considering: One, Gold is not a liquid asset. In fact, its historical property of being a safe-heaven does not change the fact that it does not carry any intrinsic value, and its relative value to other currencies remain flat, if not decreasing. Second, the rise in gold purchase will soon meet two limiting factors. Once, the effective number of buyers, and second the decreasing attraction, since its historical high will generate greater hesitancy to get in on such a high price - although there really is no historically determined price point at which it is expected to turn, since the demand itself will make it a scarcer, hence more expensive commodity. Nonetheless, I am keeping an eye on the chart, and the chart is calling for an imminent support and probable reversal in the current US Dollar decline. This should correspond to the time where ERX should turn with some reasonable synchrony, IMHO.




- Dalcindo


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In reply to:
3xBuBa Member Profile 3xBuBa Member Level Share Saturday, October 02, 2010 2:12:35 AM
Re: dalcindo post# 60997 Post # of 61097
is ERX triple top or breaking out?
look how $USD affect the energy sector and Gold, amazing!
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