Reversing the Dollar Carry Trade: Redux

Posted by Michael Berry , Ph.D. - Discovery Notes

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Once again yesterday the dollar soared against all comers.  Have a look at the movement of the US currency by 10 AM.  It looks eerily reminiscent of the summer and fall of 2008 when the dollar soared and commodities swooned.  In that go round there was a liquidation which very nearly spawned a 30s-styleglobal depression.  Beginning last Friday with “cooked” unemployment numbers the dollar soared.  This broke the back of gold and silver. Monday only a speech by Ben Bernanke turned that day around for gold.  Yesterday gold swooned another $33. Today it is again down….

Click HERE and scroll down to see a larger table:

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Gold is now entering a very healthy pullback. The yellow metal has now lost almost $100 (~8%) and silver has fallen 12%. You can see where support must kick in for gold in the following diagram.

Ed Note: $GOLD closed down a further $29.10 this December 9th Close

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Both gold and silver are very likely to become buying opportunities.  Many of you have emailed or called to ask is this the beginning of another meltdown.  I do not think so! Gold was overbought.  The dollar today is mixed.  It is higher against the British Pound, Swiss Franc and S.A. Rand but lower against the Euro, the Ruble, the Loonie and the Yen.  The bull market for gold is still intact.

We have heard numerous commentators suggest that because of this decline gold is not a safe asset  yet over the past ten years gold has outperformed most markets.

For Michael Berry’s comment on REVETT MINERALS Click HERE

 

To sign up for Michael Berry’s Discovery Investing FREE letter go HERE. Michael Berry has been a portfolio manager for both Heartland Advisors and Kemper Scudder where he successfully managed small and mid cap value portfolios. Dr. Berry has specialized in the study of behavioral strategies for investing and has been published in a number of academic and practitioner journals. His definitive work on earnings surprise, with David Dreman, was published in 1995 in the Financial Analysts Journal.

Previously, Dr. Berry was a professor of investments at the Colgate Darden Graduate School of Business Administration at the University of Virginia and has also held the Wheat First Endowed Chair at James Madison University.

Dr. Berry is a respected and dynamic speaker. He regularly presents around the world on topics such as value investing, the role of Austrian Economics in investment management, behavioral investing strategies and is a specialist in developing case studies to teach investors how to invest. While a professor, he published a case book, Managing Investments: A Case Approach.

He has recently focused on the role of precious metals in the asset allocation of the individual investor.