Dollar's decline to drive gold?

铁板烧

NEW YORK (MarketWatch) -- Gold bugs generally don't like hearing that their favorite investment vehicle is just the obverse of the U.S. dollar. But sometimes it is. This may be one of those times.

Because something very nasty just happened to the dollar. Dow Theory Letters' Richard Russell wrote on Friday evening: "I'm only going to include two charts on this site. The first is a daily of the U.S. Dollar Index Future - Spot Price. (DXY) Ugh! I see a well-defined head-and-shoulders top. If this was a stock that you owned, what would you do with it? SELL IT. Yesterday, the Dollar Index dropped below its support and at the same time dropped below its 50-day moving average. UGH again."

The Australian gold site The Privateer, which takes a severely fundamentalist attitude to matters of money and credit but which is sensitive to charting issues, also noticed the dollar's deadly decline: "... the U.S. Dollar Index has now traced out a series of lower highs and lower lows since its 88.41 peak three weeks ago. This is a STRONG indication that the huge U.S. dollar rally which began back in July, fuelled by U.S. capital repatriation and even more by global debt deleveraging, is over." See Website

The Privateer's crucial $US 5X3 Point and Figure gold chart turned up this week and is close to breaking above the downtrend. See chart

On gold, The Privateer remarks: "The action since then has been wild to an almost unprecedented degree. Last week, gold retreated all the way back to the top of its recent trading range. This week, that entire down move has been retraced - plus a little bit more."

Unfortunately, there is a plethora of reasons to suppose the dollar might slump. Many of these are well documented on Jim Sinclair's very impressive MineSet site. Sample title: "From Money to Hyperinflation -- The Path OTC Derivatives Have Paved." See Website

A significant straw in the wind: The maneuvering of the high-profile and well-informed The Gartman Letter. Short gold at the beginning of the week, and projecting a $620 price objective in some TV interviews, Gartman abruptly cut the entire position early on Wednesday morning --a day which saw gold up some $34.

Gartman is perfectly aware of the monetary debasement argument for gold. He has complained bitterly about the concept of the Fed issuing debt directly, for example.

But he is also thought to be in the rumor flow, aware of moves planned by major operators. And indeed the last three days of the week say determined gold buying. On Friday, writing as usual very early, Gartman was mumbling about buying gold in the $802-7 range as a "disaster hedge."

The radical gold bugs writing for Bill Murphy's Le Metropole Cafe have been reporting that Indian gold premiums have recovered lately. This suggests that the world's largest bullion buyer is currently supportive of gold. See Oct 26 columnSee Le Metropole Website

On a subjective note, those who have not been living in the Manhattan financial swamp these many years may not appreciate what a big deal the Bernard Madoff scandal is. A lot of powerful and influential people are going to be very shaken. Not all of them need to keep their (remaining) assets in U.S. dollars. Some of them may opt to bail.