Gold Market Wire
News, analysis and commentary for gold traders and investors
US Dollar on the Precipice of Next-Leg of Rally.
September 27, 2021 - (Gold Market Wire) - In the shadow of Evergrande's battle with "Default Doom", stocks are looking shaky across the world. Liquidity is looking even shakier, and the specter of a proper seizure of the global financial market is like the Creature from the Black Lagoon....rising from the water. The markets are telling us what others fear to say: An Evergrande default could be a very big deal, indeed. How are the markets positioning themselves for such an potential? Well, the Dollar is rallying, and looks like it could be ready for a next leg higher.
The market is sitting on the horizontal line and the US Dollar looks primed to run higher. While we have always been of the contention that Gold and the US Dollar can run up together, we have held to a large core position in the US Dollar, while nimbly trading Gold and Silver from length, and spending a lot of time on the sidelines. This time around, we have pulled our position in the metals a long time ago - and held fast to the Dollar length. And now we can see why; because, as we are oft to say, when the 'big bang' comes...everything will go, and the only thing that will matter is the cash position. In that world, today, that means US Dollars (and CHF).
It's all well and good having these big-picture, long-term prognosis, "US Dollar is Finished", outlooks... but what do they mean today, and this month and quarter. Early is wrong, and it looks like the Dollar bears are about to get roasted again. In a liquidity crisis, cash is king, and cash means US Dollar - no matter what the Goldbugs say. The least they could do is weight the position properly... like 80% US Dollar and 20% Metals... or some reasonable mix...but nope. Never gonna happened. "The US Dollar is FINISHED I tell you - FINISHED!" (/s) It gets increasingly both sad and funny, every time the say it. It is also, wrong and irrelevant, and like trying to take the incredible shrinking man seriously as he yelps and squeaks his insistence for relevance, all the time growing more shrill and smaller.
We established our Dollar length at 1.23 vs. Euro, and 1.38 vs. Sterling. (The record is here in our archive, and was written in real-time, as our readers know.) It hasn't been some 10x bagger, but it has worked. We think we're getting ready for the next leg higher and we're not trading out. If/When the Evergrande bomb goes off for real, we think we'll have another leg in the Dollar rally - which, honestly, is a position we can't see closing for the foreseeable future.