Sunday, November 22, 2009

Gold, US Dollar and Equities

Dear Readers,

You must be aware of how gold price is going up almost every day. The reserver currency of world - US Dollar has been going down but not making new lows. Instead, it threatened to start a rally in last two weeks. The mainstream media suggests gold is going up because dollar is going down. I disagree. Gold is not 'reacting' to US Dollar in the sense media suggests. If you don't believe my words then look at these charts from

As we can clearly see for last week candles that US Dollar Index chart shows dollar is moving up and comparing to gold chart, both were up last week! Which, according to media and pundits, can not happen. Why at the same time we see gold going up and US Dollar NOT going down?

There can be only few possibilities:

1. Speculators are betting on hyperinflation in near future.
2. Supply of Gold is limited and the way China and India showed their intention of buying gold implies a rise in demand.
3. No reason, it might be just a coinincidence.

The third one can not be considered as if it were true, then you would not be reading this post. There is definitely a reason and out of the first two, my bet is on 2. Gold real demand might have outdone its current and future supply in a manner that everyone is looking to acquire as much of it as he can.

On 15 Aug I recommended buying gold and a lot of it. Those readers who followed my advice must be happy today, but, I don't reccomend buying gold at this point of time. Its certainly not the right time to accumulate gold as in my opinion it has gone up substantially and so, investors should look at some good correction to buy gold.

The Dollar Index (US Dollar) shows its willing to move up after a big fall in last few months. But, looking at the chart, it should first break that downtrend line and rise above 50 SMA (on daily chart). If it does manage to stage a rally then we can see it retesting 80-81 level.

Equity markets did not show any directions last week and looked like mostly following US Dollar which kept going up and down but not meaningfully. Indian NSE Nifty shows a Reversal Day (looking at Friday's candle) and there is good possibilities that Indian equities markets may rally next week.

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