Wednesday, July 27, 2011

Chart Book July 27 for USD, Gold and Silver

HOUSTON – From the Chart Book:  The 40 years since 1971 have been a prelude to the market’s collective decision (already reached) that politicians cannot be trusted to control or even say what money is.  Politicians are learning today that the market’s collective wisdom is hard, very hard to argue with over the long term.

If the consolidation of the U.S. dollar index was a wide, choppy bear flag, it has now been broken to the downside convincingly as U.S. political ‘leaders’ cavalierly use the debt ceiling debate as a political football, casting great waves of doubt and angst in the process.  It is insult piled on top of continued injury by the Congressional ‘pols’ after using and abusing the American people, mistreating them as the bucket of dummies they were to vote for them in the first place.

U.S. Dollar Index, 1-year, daily.  If any of the images are too small click on them for a larger version. 

Continued next page…


Looking at today’s dollar index gyrations in a longer-term context, we are within striking distance of the lows set just before the Great 2008 Panic.  


U.S. Dollar Index, since 1984, monthly. 

The wonder, if we can call it that, is not that the U.S. dollar is weak recently.  That is understandable given the enormous amount of liquidity pumped into the system by the U.S. Federal Reserve and the U.S. Treasury Dept.  The dollar should be weaker given that the U.S. borrows 40% of every dollar it pays out today.  

The ‘wonder’ is that the greenback still carries as much value in the world as it does.  That is a testament to the sorry ‘value’ – the terribly ill nature of all of the other members of the USDX “Fiat Currency Leper Colony,”  the largest other member of that index being the euro.   

It pays to remember that the dollar index is a measure of relative strength of the greenback versus a basket of other under-backed fiat currencies, all of which have been abused by their elected ‘leaders.’  The dollar index is not a measure of the dollar versus gold.  Gold is that measuring stick.  

As all of the members of the fiat currency leper colony duke it out for the sickest inmate, the world has been quietly and surely moving wealth out of paper promises and into gold and silver.  The chart below tells the story fairly well.  


U.S. Dollar Index in terms of gold metal since 1992, monthly.  

We are all witness to the wages of decades of dollar abuse by politicians concerned more about reelection than for the economic health of the nation. 

Is it any wonder, then, that a few of our elected representatives have chosen now as the time to use the U.S. debt ceiling as a lever?  They are figuratively grabbing their Big Spender colleagues by the lapels and slapping them in the face.  

One can hear them screaming today.  “Look what your irresponsible borrow and spend ways have done to our currency and to our country!” 


The other side of the trade is gold, and increasingly, silver.  Today’s ‘news’ is not really new to the people who have seen it coming for a long time.  Those who have seen it coming have been involved in the chart just below, and the one below it. 


Gold since 2001, monthly.  

Seems fairly orderly so far, does it not?  Got Gold? 


Silver since 2001, monthly. 

A bit more choppy, but the trend has been clear.  Silver is reassuming its monetary role (the market says so), and we believe it is on a path to reclaiming its historic relationship to gold of something between 15 and 20 ounces of silver to one ounce of gold.  Got silver?

 The really amazing thing to consider following our brief look at the charts above is that both gold and silver remain amazingly under-owned by the vast majority of investors worldwide.  There may not be any limit to the amount of fiat currencies out there, but there is indeed a limit to the amount of metal all that paper is chasing.  Each new crisis, each new reminder to the populace that fiat currencies are nothing but under-backed debt, sends a new wave of wealth into precious metals.  That is inarguable.  Witness the evidence of it above.      

For Got Gold Report members that isn’t really ‘news’ either.  Wealth fleeing into metal is one of the major reasons we have chosen gold and silver as our own safety net and haven from currency debauchment.    

There seems to be a consensus building that once a debt ceiling agreement is reached it will trigger a selloff for gold and silver.  That may indeed be accurate, but our contention is that any selloff will be in the context of the graphs above and just one more buying op along the way to a new era of hard money currency.  

Our view is that we passed the Fiat Currency Rubicon in 1971 when the U.S. was forced by the market to abandon the last ties to gold backing the dollar. 

The market moves slowly at times, but once it makes up its mind politicians are powerless to stop it. 


That is all for now, but there is more to come.  



The Original
Vulture Speculator

Trading gold, silver and mining shares since 1980 with a focus on taking advantage of volatility extremes, Gene Arensberg analyses the markets through a basket of technical and fundamental indicators and shares his findings from time to time here at Got Gold Report. Mr. Arensberg has been quoted in the Wall Street Journal, Dow Jones MarketWatch, USA Today and dozens of other news organizations.

"I've been a huge fan of Gene and his amazing work for years..."

Brien Lundin, CEO, Jefferson Financial, Host of the annual New Orleans Investment Conference and Publisher of Gold Newsletter

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