The World's Most Important Charts

JC Parets
January 18, 2020

You guys know that I just tell it like it is. I don't care what happens. The stock market can double or can get cut in half. Gold can go to zero tomorrow or to 10,000/oz and I won't care. I'm too old to worry about the economic or social implications of market moves. Been there, done that and it doesn't help. We have to look at everything as objectively as possible.

Now, with that said, I have some thoughts that some of you may not appreciate. But I'm not here to tell you what you want to hear. I'm here to tell you what I'm seeing right? So bear with me.

For those of you who have been around here a while, you remember just how bearish I was towards the US Dollar coming into 2019. The Dollar rolling over was a big catalyst for why we were so bullish of precious metals throughout the first 3 quarters of 2019. It wasn't until September last year that we said, ok it's time to get out.

That's just a quick little history of our thought process, to give some of you newcomers perspective on just how open minded we are over here. Looking back, as well as precious metals did, the Dollar never rolled over. We got the gold trade right, but got the Dollar wrong. The US Dollar Index did not fall, but it didn't rise either. It just sat there.

So now what? 

Well, here's what's happening. We've been hugging this 61.8% retracement the past 15 months or so without that rollover we expected. This is the market proving us wrong. This is the market invalidating our prior thesis. This is the market doing it's #1 job: testing our objectivity.

So do we just sit around waiting for the Dollar to roll over? Or are we taking this information seriously? If the Dollar Index is above 98, I believe the path of least resistance is higher, not lower. We want to be US Dollar bulls if we're above 98. Yes that's right. U-S-D-O-L-L-A-R-B-U-L-L-S

From failed moves come fast moves in the other direction, is how I learned it. And I think this could be that.

Now let's flip this around. Remember the Euro accounts for almost 60% of the US Dollar Index above. Since we thought the Dollar would roll over, we also figured it was time for a Euro rally. The idea was to be long Euro if we were above 1.12. But that breakout never happened:

This is the market proving us wrong. This is the market invalidating our prior thesis. This is the market doing it's #1 job: testing our objectivity.

We want to be shorting Euro and looking for Dollar strength if EURUSD is below 1.12

What does this mean for precious metals? Well, Gold is still below 1600 and Gold Miners are still below 31, so selling them since September has proven to be the wise choice. But now what?

I think if you have any exposure to metals stocks, you have to be watching Dollar/Yen - here's why:

Will Yen making new lows spark the relative breakdown in Gold Miners? Personally, I think that's precisely what a weaker Yen will do.

And the Commercial Hedgers seem to agree. They have never been more short Gold in history. Never.

And yes, thank you geniuses, I know that Gold Hedgers are always short. I get the free data too. My bigger point, is that they have never, ever, ever been this short. And they're not covering either. They're only getting more short. And Silver Hedgers are incredibly short as well. And Platinum hedgers are a lot more short than any other time in history.

The smart money is betting against precious metals. In fact, the smart money has never had on such a large bet against precious metals.

And historically, when precious metals do well, Silver tends to outperform Gold. That's a pretty standard characteristic of an uptrend for precious metals.

But guess what's happening today? Silver is NOT outperforming Gold. This is still a downtrend:

When Gold is above 1580-1600, I have no problem with a long position. When Gold Miners $GDX are above $31, I have no problem with a long position.

Today, I have a problem with a long position.

This is still a downtrend. If you argue otherwise, you're either closing your eyes or you're looking at your charts upside down:

I think we could be about to see a serious face ripper in the US Dollar and the implications can (and likely will) be felt across asset classes all over the world. Think about the implications a stronger Dollar will have on Emerging Markets. And as well as EM has performed, there is NO evidence that we need to overweight EM over the U.S.:

This is still a downtrend.

And EM looks even worse when compared to the Nasdaq. We're still seeing new lows:

I think the US Dollar needs to be front and center right now. This is likely to be the big story this quarter.

Full disclose, I said a year ago that the US Dollar would be the big story. And it wasn't.

But looking back now, I think our incorrect thesis is information we can use to help us today. And I believe there is overwhelming evidence that a squeeze in the dollar is setting up and it will have ripple effects all over the world.

We're paying close attention. We want to be selling Gold if it's below 1600. We want to be selling Gold miners if $GDX is below 31. We want to be buying Dollars if $DXY is above 98. We want to be selling Euro if $EURUSD is below 1.12. We want to underweight EM if the EEM/SPY ratio is below the early November highs. We want to be selling Yen if $USDJPY is above 109.50.

This is what's going on out there.

Tell me what you're seeing

JC

 

 

 

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