This week it was the Forex market that demanded my attention. Not because it was flailing out of control, on the contrary, it was because that’s where the excitement was. The British Pound, Euro, and Australian Dollar either hit new highs this week or crossed important price levels, all at the expense of the US Dollar.
It safe to say that the US Dollar is firmly entrenched in a Bear Market and it’ll probably get worse before it gets better. I fully understand why traders are shying away from the US Dollar but the one thing that’s causing me to scratch my head is gold prices. Why on earth are they so low? I would expect that a weak US Dollar should give Gold prices a boost, but it hasn’t.
According to some current research I’ve done for publication, an interesting non-linear relationship has presented itself between Gold and the US Dollar. These results made me challenge conventional wisdom that a weak dollar = strong gold prices.
Based on this curve, and using Wednesday’s closing prices, Gold should be trading at $570/oz (USD closed at 80.28); gold closed at $662 that day.
This means that either:
- Gold prices are two high and should come down, or
My point is, assuming my model isn’t wrong, that inefficiencies exist in the markets more often then we believe Sooner or later these inefficiencies will correct themselves, usually very violently, without any warning.
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