Dollar Surge Before Gold Rush; Watch 2015/2016!
02-28-13 – When discussing expectations for a major Dollar shift (beginning in 2013 and potentially extending through 2016), it is crucial to reiterate and re-examine a particular aspect of that analysis that has not been discussed as much in the last couple issues. It is the involvement of Gold (& Silver).
The primary reason for this is that Gold provides the basis on which to determine the Dollar’s value. There are other standards as well. Since 1973, Crude Oil has played an integral role in supporting the Dollar and its value can also (inversely) reflect the underlying value of the Dollar… although many other factors distort this. Other currencies also provide a way of ‘valuing’ the US Dollar. A basket of 6 currencies is used to produce the Dollar Index – traded in Forex & futures markets. However, these are also impacted by many other factors.
In an imperfect world, Gold is the most accurate basis on which to ‘value’ the Dollar. And, Gold is the one basis – out of all these just cited – that has centuries of price data (or at least data of ‘value’) against which the long-term trend and value of the US Dollar can be measured.
As a result, Gold should always be a primary part of this discussion.
The Gold Rush
Gold’s relationship to the Dollar is also why Gold is often the target of fierce attacks from those that do not want an accurate assessment available to the masses.
Throughout the 2000’s, as global investors lost more confidence in the US Dollar, they created another ‘gold rush’ – ultimately resulting in a 6-fold increase in the (Dollar) price of Gold. This rabid buying of Gold – and selling of Dollars – reinforced a trend that has been unfolding since at least 1985 – and actually for much of the past century.
However, as I have explained dozens of times, August 2011 was the culmination of major cycles in Gold – when a Major peak was projected. This cycle window (which included August & September 2011) included, but was not isolated to, a 40-Year period of testing from when the US slammed shut the Gold window in August 1971 and a 21-month cycle (sometimes ranging from 20-22 months) that next emerges in May–July 2013.
This is why most charts and technical analysis conclude that the initial months – or even years – of this Dollar transition cycle (2013–2014) could see bullish movement in the US Dollar… and another wave of selling in Gold (after June 2013).
The Governing Cycle
One of the most consistent cycles in the Dollar Index – for the past 35 years – has been a 38–40 Month Cycle. During the past 4 decades, there have been times when this cycle shortened to 34-35 months and times when it lengthened to 41-42 months. Each time, however, it would quickly return to 38-40 months.
The accompanying table illustrates this with the durations of most of the multi-year cycles or waves of the past 35 years. More recently, the Dollar has created several 19-20 month cycles – a precise half-cycle and a reinforcement to future phases of this 38-40 month cycle.
Since the March 2008 major bottom, the ensuing lows have arrived at intervals of 20 months (Nov. 2009), 18 months (May 2011) and potentially 20-21 months (lowest monthly close in Jan. 2013 and intra-month spike low in Feb. 2013). The next phase recurs in July–Oct. 2014 – aligning with a 38-40 month move from the May 2011 secondary low.
38–40 Month $$$ Cycle
37 months: 1978 low–1981 low
39 months: 1981 low–1985 high
34 months: 1985 high–1987 low
38 months: 1987 low–1991 low
39 months: 1989 high–1992 low
34 months: 1992 low–1995 low close
39 months: 1995 low close–1998 low
35 months: 1998 high–2001 high*
41 months: 1998 high–2002 high*
41 months: 2001 high–2004 low*
35 months: 2002 high–2004 low*
39 months: 2004 low–2008 low
39-40 months: 2005 high–2009 high
38 months: 2008 low–2011 low
40 months: 2009 high–July 2012 high
39 months: Nov. 2009 low–Feb. 2013 low?
38-40 months: May 2011 low–July-Sept. 2014
* 2001 & 2002 highs were double tops. The avg. of the 35–41 month cycles – from the 1998 high to each of these highs and from each of these highs to the subsequent 2004 low – was 38 months. IT
…The Dollar Index remains well below the July 2012 peak – a top that fulfilled a 40-month high-high-(high) Cycle Progression that now includes significant peaks in Nov. ‘05, March ‘09 & July ‘12. That high was/is expected to hold for at least 6 months and potentially for 9-12 months.
On the downside, the Dollar was projected to test 6-12 month support and a synergistic convergence of weekly HLS levels – at 78.12–79.07/DXH. This range was tested as the Dollar was perpetuating a 42-43 week low-low-(low) Cycle Progression. And, it was retested on Feb. 1st – reinforcing the significance of this bottom.
The Dollar still needs to – and is finally in a position to – give a weekly close above 81.70/DXH to confirm a multi-quarter bottom. As reiterated last month, the weekly 21 MARC pinpointed early-February as the most likely time for a new move higher. That is precisely when the Dollar entered its current surge.
The Dollar Index has just turned its weekly trend up, after turning its daily 21 MAC up early in the month.