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"Be Right - Sit Tight"

Jesse Livermore
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Gold Market Wire

News, analysis and commentary for gold traders and investors

FX Watch

US Dollar Takes out Resistance

February 17, 2021 - (Gold Market Wire) - Against a sea of haters (and quite a lot of abusive e-mails, telling us how we know nothing), we have contended, since 1.22-23, that the US Dollar was going to rally. Today, we have taken out the resistance line and resumed the US Dollar rally against the only currency cross that matters when measuring Dollar strength and weakness, the Euro. The resistance line was of the important kind, so we feel its crossing is noteworthy, and that the stage is set for a further Dollar rally.

...the Dollar bears better start sweating, because this trend isn't likely to change.

Yes, we can hear people protest that "Gold is currency too" and can engage in that facile argument all day long. It is a waste of time. On the major FX desks of the world, Gold is not traded. And that is all you need to know. Is Gold 'money'? Yes. It is a monetary instrument. But that doesn't mean that all the major banks and trading houses of the world deal in it ... some do, most don't. Is it a 'store of value'? Absolutely. Is it the "inverse monetary proxy" of the US Dollar? Sometimes - but not always...and sometimes not at all. Actually, Gold acts, much of the time, an "inverse monetary proxy" of all, currencies... ipso facto; and all currencies except the Dollar. The US Dollar is still the global reserve - like it or not.

But in the trading environment, which is our remit here at GMW, we care about EUR/USD and Gold/USD. As we begin to enter into the world of monetary crisis proper, we still believe that Gold and the US Dollar can, and will, rise together. That is why the Goldbugs hate us. Will Gold outperform vs. the US Dollar? Eventually it probably will. But for our trading book, we like to be long both Metal and the FX-Cross... as well as short the Gold/Silver ratio. In defense of our thesis, it may be worth noting that Silver has barely budged today (basis theUSD) while the Dollar has rallied strongly. That fact both captures the g/s ratio and reveals Silver's underlying strength.

It's called positioned trading for a reason.

Leaving the pedantry behind, and going back to what counts, the US Dollar has just made a major move.

zoom out - big picture.

Right now the world is US Dollar bearish. That is part of what motivates us. When they are forced to disgorge the position, the Dollar will run hard. We may have started the next leg up, which will cause just that. Moreover, we'd like to note, from a historical perspective, that modern monetary crises in the post-WWII era have been mostly characterized by a Dollar that is running away to the upside...not collapsing. A strong Dollar is the mechanism by which our debt-driven world explodes in crisis, because foreign nations carry their debt in US Dollars - not home currency - which no one will lend in, in any serious amount, because those markets have no depth. So, for those who are preaching a global monetary system that will collapse, perhaps they might re-consider the fact that it, historically, a monetary crisis is twinned with a rising Dollar - not a falling one.

History is about to claim some scalps in the trading arena. History is on the side of the Dollar and Gold bulls. And right now, the Goldbugs are feeling the pressure of monetary history. Goldbugs want the Dollar to fail. But not only is that a ridiculous reason for an investment or a trade, no one, but no one, is bigger than the market. We at GMW believe that the history of monetary crises show that we will first move through a strong move higher in the US Dollar, which will then lead to a higher Gold price against all currencies. We want to capture that order of events properly, and right now, that means acknowledging that the US Dollar is showing some serious strength, no matter what the Gold crowd 'wants' to happen.

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