Wednesday, November 22, 2006

Real Money?

I don't know how many arguments I've sat through between the antagonists and protagonists of the "Gold is the only true currency" dogma. In such instances I feign some sage-like loftiness as to being above such materialistic concepts (when in reality the discussion is well over my head, I don't have a clue. lol)

I can only default to my observations; sometimes it acts like a currency, sometimes like a commodity. In the last few months at least, the reverse correlation to the USD index is quite striking, as per the chart on the left.

Without drawing all those tiresome lines all over the chart, technicians will recognize the short-term trading signals (all depending on time frame and style of course), long gold, short the dollar index.

So the question today is, whether to take both trades, or is it really the same trade? Is long gold really short the dollar by default?

For now, my thoughts are kill two birds with one stone, and gold is sexier than USD's, so I'm with gold, and hoping for a breakout of the recent highs.

6 comments:

NO DooDahs said...

Hi Av,

You may know I sold out of my NXG a few months ago and got whipsawed out of a GLD not long afterwards. I'm happy with the NXG (May '05 purchase). Right now I'm inclined to be a gold bear based on this triangle.

http://stockcharts.com/h-sc/ui?s=$GOLD&p=W&yr=2&mn=0&dy=0&id=p32137783755&a=89157921

Now, if gold had an inverse relationship to the dollar, one would expect a chart of the gold contract, divided by the USDX, to be flat, right?

http://stockcharts.com/h-sc/ui?s=$GOLD:$USD&p=M&yr=10&mn=0&dy=0&id=p76223293927

You can clearly see that gold disconnected from the dollar by 2004 and is currently moving as a commodity.

Just my thoughts ...

NO DooDahs said...

If the links don't come through clearly, let me know and I'll email them or put them on my blog.

Avalonian said...

Bill,

Got those links up alright... interesting.

Thanks

As it turns out, the Dollar Index is getting swatted a lot harder than gold is rising. Euro is confirming that relationship.

Maybe gold IS looking a bit bearish on that count.

Like I said.. no idea :-o :-)

Cheers

NO DooDahs said...

Your previous post and the link on Kitco, I believe many of those arguments could apply to gold, oil, and the softies as well. Of course, since it's a Kitco paper, they couldn't MENTION the possibility of gold being included in their hypothesis, but it is possible.

I don't know either. I am currently long only PCU in that space, but have a specialty chem NEU in the port and have several on watchlist. I was VERY HEAVY gold, copper, oil, and steel at the start of the year and think the bull may be gone for a while from these plays.

Avalonian said...

Bill,

I agree with you regarding the bull being gone for a while, and have argued so in various forums and amongst friends; even to the point of making myself somewhat of a pariah.

Even oil seems to have had it for a while. (There now that I've said it it's probably a great fade! lol)

I doesn't affect me greatly as I like to trade volatility first, swings and intermediate trends next, rather than hold for long periods.

But back to DX vs GC... I wish I had taken the DX trade rather than the gold. :-/

Cheers

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