From the Desk of Ian Culley @IanCulley
The US Dollar Index $DXY has posted its tenth week consecutive in the green.
And with the dollar off to a solid start Monday morning, an eleventh looks promising.
This is excellent news for dollar bulls.
But it’s a gloomy prospect for risk assets, especially precious metals…
Check out the performance chart anchored from DXY’s July 13 bottom:
US stocks ($SPY), international stocks ($EFA), emerging market stocks ($EEM), gold ($GLD), silver ($SLV), and even US T-bonds ($TLT) are falling under a rising dollar. (Crude oil $USO has 99 problems, but the dollar ain’t one.)
Yes, US T-bonds remain a risk asset from a price perspective. A strengthening dollar will accompany declining bond prices if the US dollar and interest rates continue to climb together.
Global risk assets and precious metals do not perform well when investors flock to the US dollar.
Bonds are skidding lower. US stock indexes are breaking down. And precious metals? Well, it could be worse.
GLD is outperforming global equities, including the S&P 500, over the trailing two months.
Last week, I noted the peculiar resilience of silver as rates and the dollar (let’s call them the terrible twins) caught higher following the FOMC decision to keep the target rate between 525 and 550 basis points.
A defiant buoyancy among precious metals remains a crucial theme supported by a dogged demand for these shiny rocks.
Silver is finally experiencing increased selling pressure this morning. Perhaps silver and gold were on a time delay last week.
Regardless, I’m not crazy about shorting these assets. We always want to buy the strongest and sell the weakest. And precious metals are far from the weakest assets in the marketplace right now.
Let’s switch it up by approaching gold as a currency…
Here’s a quad-pane chart of the euro, the pound, the Australian dollar, and gold:
If I had to pick a chart to sell, it wouldn’t be the one holding near all-time highs (gold).
Last year, the euro fell below parity for the first time in 20 years, and the pound retested its all-time low.
Meanwhile, gold chopped sideways, challenging the upper bounds of its range – not the type of action I like to short.
To be clear, gold and precious metals have yet to break out.
Overhead supply looms large. And a strengthening US dollar will not aid gold bugs in their campaign to fresh highs.
In fact, a rising dollar will hinder their cause – without question.
These shiny rocks and the companies that mine them face an uphill battle.
Based on the charts, gold, silver, and precious metals have grit – a hallmark of success and a character trait I can get behind.
I like gold’s odds. But I can’t get involved until it breaks above overhead supply.
Stay tuned!
Click here to watch this week’s Gold Rush Video:
Let us know what you think. We love hearing from you.
Thanks for reading.
And be sure to download this week’s Precious Metals Report below!
Allstarcharts Team
