"Dollar Gravity On Precious Metals"
From Evil Speculator:
...Let’s talk about Dollar gravity, which is a factor more apparent on the
Forex side but obviously it does play a significant role across all
market verticals and in particular on the future side. As you can see
above the Dollar just completed a series of 10 consecutive higher closes
and only yesterday dropped back after touching the 101.4 mark. It would
be fool hearted [sic] to proclaim an immediate top here and now as currencies
often exhibit excess kurtosis which is a fancy way of saying that they
have a tendency to run far beyond your most conservative stops and then
some.
Now with that in mind let’s talk about Dollar gravity which I have
attempted to visualize by showing you a GOLD:USD ratio (in blue) on top
of just the continuous gold futures contract (in green). What you may
notice is that the ratio has been dropping below gold over the past few
years which means that gold in relation to Dollar strength is weaker
than gold on its own.
I know this can be a bit confusing as futures contracts after all are
quoted in Dollars, right? But recall that the Dollar index represents
the strength of the Dollar in relation to other currencies. And if the
Dollar strengthens then it obviously will impose a drag on commodities
(as well as stocks) as you require less Dollars to buy the same amount.
What I find interesting is that the ratio and the futures seem to
have been in relative sync during the heydays of the goldbugs, which
means from about 2005 into mid 2011....MORE