Bearish the Currency Gold…..

Posted by Jack Crooks - Black Swan Capital

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“I refuse to join any club that would have me as a member.” – Groucho Marx

FX Trading –  The Gold Club (or religion of gold)

My father in law wrote yesterday to give me grief about my recent gold forecast/guess as laid out in a recent Currency Currents.  So happy he was with the recent bounce off the support level in the yellow metal (see weekly gold chart below).  


I’m used to the well-deserved harangues from him.  But I think he is way too complacent about his position.  I have concluded that most who like gold do not like it for its investment quality—it is pure and simple a religion.  Thus, negative talk about one’s religion cannot be tolerated.

Nothing seems to deter gold believers.  I expect my father in law will ride it all the way down.  (Okay, I know what you’re thinking, gold has already put in a big correction, down from its high; it can’t go much lower is the complacent consensus complaint when we say that.) I am not talking about the corrective-move type of stuff; I’m talking about the type of hit gold takes when the US dollar enters a multi-year bull market.  

Empirical evidence that every major bull market in the dollar has been met by a big sell off in gold, since currencies began floating back in 1971, won’t deter my father in law, and I know it won’t deter those who worship at the altar of GOLD.  [There is an economic reason why this occurs; gold is priced in the world reserve currency—the US dollar.  It must maintain global purchasing power when the world reserve currency falls in value relative to other currencies.  Thus, the dollar gold price moves lower when the world reserve currency increases in value relative to other currencies.  It is this way it is and has to be in a world still dominated by the dollar, with no alternative on the horizon.]

In the chart below, gold is represented by the red line and the US$ index the black line.  This slide is a bit old…and was done just before gold broke out and surged to its new high on the back drop of plenty of liquidity flowing back into the market, pushing all other risky asset higher i.e. liquidity-driven risk asset classes—gold is now a risk appetite asset given the way it is acting.  It is not acting as a safe haven.  

….read page 3 HERE (start at the 38 year notated Chart)

Jack Crooks was a speaker at the World Outlook Financial Conference January 22,33


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