The US dollar index (DXY) is holding firm in its rally that could trap USD bulls or reassert the USD bull market.
In my opinion, the best way to tell which will play out is whether or not the market is showing signs of liquidity problems. And the best way to gauge that is if USD is rising while the Gold/Silver ratio is also rising. With a Fed due to weaken, our theory all along has been that the liquidity crisis that the Fed’s policy should at some point induce, would send haven seeking investors the world over into the global reserve currency and into gold on a relative basis to silver. In other words, as the bullish fundamental of a hawkish Fed eases, the remaining fundamental is the reserve currency’s tendency to receive panicked liquidity bids.
The reserve currency is still the reserve currency until it no longer is… no matter how much air play the gold backed BRICS currency story gets. Gold is a much better liquidity haven than silver since it has more counter-cyclical and monetary characteristics than silver. This could mean it would go down far less than silver, commodities and stocks if a liquidity crisis hits.
Let’s check in once again on the 2 Riders.. The last barrier to a confirmed re-bull on USD is circled just below 106, at the March high. Currently USD is at 104.70.
The Gold/Silver ratio is up again this morning and piercing the downtrending moving averages. Both of these items are in daily downtrends that would be broken if they each cross the March highs (in GSR’s case, the poop face). But also in GSR’s case, taking out 86 and the grimacing face would be a strong caution signal.
So here we are, getting a first taste of the post-labor day environment in a month that is on average not a positive one. I don’t want to set off alarms before they go off but I do want to track the process. That’s kind of what I do.
