Category Archives: Forex

Discussion about currency trading, gold, silver and commodities.

Is the US Dollar Rally Coming?

Down Dollar Down: Time for “UP”?

Don’t rely on after-the-fact headlines. Our charts and forecasts explain how we got here — and where we’re going.



 

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This article was syndicated by Elliott Wave International and was originally published under the headline Down Dollar Down: Time for “UP”?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

EURGBP: A Picture of Elliott Wave Precision

The euro’s recent surge to two-month highs against the pound fit its Elliott wave blueprint beautifully

Let’s assume financial markets are driven by news events. Negative news items cause prices to fall, while positive items fuel rallies. Easy enough, right?

Not exactly. See, there are several problems with this premise, most of all this: Investors’ interpretation of the news is constantly changing. To use those events as a gauge of future price action is like trying to shoot a straight arrow in the middle of a tornado.

Take, for instance, the recent news events surrounding the euro/pound currency exchange rate.

On May 18, a stronger-than-expected UK retail sales report was initially seen to be a major fundamental coup for the pound, as this news source makes plain:  

“Pound to Euro Exchange Rate: Sterling SURGES After UK Retail Sales Smash Expectations… Sterling woke from its slumber and then some, following the strong April retail sales data. This robust number has rekindled optimism in the ability of the UK economy to ride out the ongoing political uncertainty.

Sterling has rediscovered its fight.” (May 18 Daily Star)

It doesn’t get any more bullish than that!

And yet, the very next day, sterling fell back into its “slumber” as that “rekindled” optimism blew out. Here, one May 19 news source attempts to explain away the pound’s rogue bearish move:

“Pound to Euro Exchange Rate: Sterling FALLS Despite Supportive Economic Growth in UK” (May 19 Daily Star)

So, essentially, the same news event deemed uber-bullish one minute is futile against the pound’s downtrend the next?

How about this instead: News is largely irrelevant to a market’s underlying trend. In our experience, price action is driven by investor psychology, which unfolds as Elliott wave patterns directly on a market’s price chart.

Like, say, the EURGBP. On May 11, our Currency Pro Service analyst Michael Madden identified a powerful bullish set-up on the intraday price chart of the EURGBP — namely, the start of a third-wave rally. Madden wrote:

“We are counting an impulse pattern complete off the 0.8315 low, wave (i) of ((c)), a corrective pullback, wave (ii), must not penetrate the same low in order to keep the bullish forecast alive and will create the next setup for higher in wave (iii).”

From there, the euro soared against the pound in a steady third-wave rally to two-month highs, the pound-“bullish” UK retail sales report notwithstanding:

As for where the euro/pound currency rate is headed next… our Currency Pro Service is 100% certain of one thing: The answer is not in the news!


Learn How the Elliott Wave Principle Can Boost Your Forex Trading Success

Put the power of the Wave Principle to work in your forex trading with this free, 14-page eBook. EWI Senior Currency Strategist Jim Martens shares actionable trading lessons and tips to help you find the best opportunities in the FX markets you trade.

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This article was syndicated by Elliott Wave International and was originally published under the headline EURGBP: A Picture of Elliott Wave Precision. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

EURUSD – What is Next?

Think the recent rally in the euro was the result of “good news” from Greece? Think again.

Watch our Currency Pro Service editor, Jim Martens, explain what’s really behind the moves.


Trading Forex

“Trading Forex: How the Elliott Wave Principle Can Boost Your Forex Success”

In this free 14-page eBook, our Senior Currency Strategist Jim Martens pulls from 25+ years of experience to show how to use Elliott wave to improve your analysis of the currency markets.

Learn how you can put the power of the Wave Principle to work in your forex trading.

Get this free 14-page eBook now >>

This article was syndicated by Elliott Wave International and was originally published under the headline (Interview) EURUSD: After the Rally, What’s Next?. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Greek Tragedy? Too Late to Prepare

Today, I got on the phone with Brian Whitmer, editor of our monthly European Financial Forecast.

Brian has been preparing his subscribers for the Greek crisis for a while. Listen to his latest thoughts.

Europe is in the world spotlight this month, with Greece’s future hanging in the balance. But Greece is just one part of the problem. Enjoy an excerpt from Brian Whitmer from the June European Financial Forecast to see just how precarious Europe’s financial situation has become.

Read Global Insight: Europe’s Debt-Dependent Economy now >>


This article was syndicated by Elliott Wave International and was originally published under the headline (Interview, 5:13 min.) Greek Debt Crisis: “Too late to prepare now”. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

Gold Price Direction

Where is the gold price heading? Will gold keep crashing? Since hitting a record high of $1921.50 per ounce in September 2011, gold prices have erased 30% in value. By the end of day on October 3, 2014, gold prices were circling the drain of a 15-month low.

After such devastation, the global community of gold analysts, advisors and investors finds itself scattered as an anthill colony after being stepped on by a giant bear paw. This recent Forbes article captures the divisiveness among gold watchers:

“‘Survey Participants Split Over Gold Price Direction‘ as a potential decline in the U.S. dollar competes against ‘geopolitical reasons’ for prices to bounce.”

This magnifies an important point, namely:

Mainstream financial analysis uses news events to gauge where prices may be headed. The problem with this strategy is that it does not anticipate trend changes — it only reacts to the changes that have already happened, almost always leaving you one step behind.

Naturally, this reliable unreliability leads to uncertainty among those invested in the market’s trend.

Elliott wave analysis takes a radically different approach. Rather than looking outside the market for clues into future price action, Elliotticians look to the price charts themselves. There, they identify fixed and finite patterns which shape the market’s near- and long-term character.

You can use gold’s 3-year-long sell-off as a prime example. Back in 2010-2011, gold’s bullish “fundamental” picture was allegedly in the bag. The U.S. Federal Reserve just launched its $1-trillion-a-year quantitative easing program, which was widely expected to fuel gold’s inflationary fire. An August 25, 2011 Gallup Poll confirmed:

“Americans Choose Gold as the Best Long-Term Investment.”

Elliott Wave International, however, saw a different outcome for gold on the metal’s price chart: an impending decline. In theSeptember 2011 Elliott Wave Financial Forecast, our analysis included the following chart, which showed gold prices at or near the end of a decade-long, 5-wave advance.

Gold’s wave structure is consistent with a terminating rise. [Elliott waves progress and therefore top out in 5 waves]. As this monthly chart shows, prices exceeded the upper line of the channel formed by the rally from the 1999 low in what Elliott terms a throw-over. A throw-over occurs at the end of a fifth wave, and represents a final burst of buying. The pattern is confirmed as complete once prices close back under the upper line, which currently crosses $1650.”

So, that was then. What about now?

Today, the mainstream is divided between opposing fundamental forces. But at the San Francisco Money Show in August 2014, Elliott Wave International’s chief market analyst Steve Hochberg identified a very compelling reason to form a united front in gold’s future — an Elliott wave triangle pattern.

You can hear the exact point when Steve shared this exciting development to his audience via this clip from his Money Show presentation:

Steve goes on to explain how pinpointing this triangle helps him lay down a forecast for “what gold is going to do from here on out.”

Would you believe that gold prices should “rally” for a year, maybe even two??

Would you also believe you can watch Steve’s entire Money Show presentation on gold (not just the 30-second preview featured here!), FREE?

Well, you absolutely can. For a limited time only, Elliott Wave International is releasing Steve’s Money Show presentation on gold — in two 5-minute long videos.

This very special offer is FREE to all Club EWI members. Simply complete your free Club EWI profile and get instant access to Steve’s presentation >>

Using Elliott Wave Analysis for Forex

Analyzing Forex with Elliott Wave Can Help You Catch Rallies and Declines

Free Week of Elliott Wave International’s Currency Specialty Service is here until Nov. 18, 2010

On November 1, the EUR/USD — the euro-dollar exchange rate and the most actively-traded forex pair — was trading the $1.38 range, near the level it is today.

But if you look at what the EUR/USD did between November 1 and 9, you’ll see a huge 400-point (or pip, in forex lingo) rally into the November 4 top — and an equally huge decline back to the levels we see today.

That’s an 800-pip “round trip” in just six trading days — a huge move which obviously caught a lot of the U.S. dollar bears and bulls by surprise. Could you have seen it coming?

If you know how to analyze currencies with Elliott wave, the answer is probably “yes.” Wave analysis helps you identify patterns in market charts and tells you how those patterns — ideally — should develop. In other words, Elliott allows you to narrow down multiple possibilities to a handful of probabilities.

A probability is never a certainty. But it’s better than a shot in the dark, as this example demonstrates.

On November 1, Elliott Wave International’s Currency Specialty Service posted the following end-of-day forecast. (Some Elliott wave labels removed for this article):

Elliott Waves Euro/USD
  • [Higher, into a top] The euro is poised to thrust above 1.4160. The question is if the thrust takes place before the FOMC announcement and ends afterward, or starts in response to the announcement. Before or after, the euro should hit new highs.

What gave Currency Specialty Service the confidence to make that forecast? It was the “contracting triangle” pattern you see in the chart above. They often appear in 4th waves, right before the market’s final push in wave 5. The EUR fulfilled the forecast with a 400-pip rally into the November 4 top. The following day, our Currency Specialty Service wrote:

  • The euro is reversing course after a thrust from a triangle. The decline from 1.4283 might not be in five waves, but it has the characteristics of an impulsive wave. A correction of the rally from August should reach the 1.3636-1.3700 area, the 38.2% retracement of the advance…

…which brings us to the price levels where we find the EUR/USD today. And if you’re curious to know what Currency Specialty Service has to say now, you have a great opportunity:

Free Week is live through noon EST on Thursday, November 18! You can access all the intraday, daily, weekly and monthly forecasts from EWI’sCurrency Specialty Service right now through noon Eastern time Thursday, Nov. 18. This service is valued at $494/month, but you can get it free! Access Currency Specialty Service Free Week.

Euro’s Twists and Turns: What’s Next for the Currency?

(Note: This video was recorded on November 5, 2010)
Since the November 4 high, the euro has declined sharply against the U.S. dollar. Does this mean that it’s time for a trend change in the dollar? Watch the free video below to get Elliott Wave International’s Senior Currency Strategist Jim Martens’ take on what he thinks is coming next.

EWI’s Forex FreeWeek is happening now! For an entire week you get free access to EWI’s intensive Currency Specialty Service. Hurry! Forex FreeWeek ends Thursday, Nov. 18.

 

Free Video Lesson

Watch Jim Martens, Senior Currency Strategist at Elliott Wave International, the world’s largest market forecasting firm, give tips on how to trade forex with Elliott wave analysis – free.

  • The U.S. dollar is the current center of the global financial community’s attention, and it will likely stay in the spotlight for a while. That could be good for the forex market – and you, a forex trader.
  • Already the largest and most liquid market on the planet – with the daily volume ten times larger than the combined daily turnover on all of the world’s stock exchanges – recent focus on the dollar is likely to attract even more currency speculators. And that means even more volume and liquidity – a nimble trader’s paradise.
  • Winning in forex is not easy. You need skill, discipline – and sometimes, just pure luck. You also need a method. You may have heard that Elliott wave analysis is something many forex traders use. It’s true; wave analysis is not a crystal ball, but it helps you accomplish three crucial goals: Identify the trend, stay with it, and get out when the trend is likely over.
  • Elliott Wave International’s web site gives you multiple resources that teach you Elliott. Of course, nothing helps you learn faster than watching a good teacher. That’s why you don’t want to miss this free opportunity to learn from one of the best forex Elliotticians out there.*
  • Your FREE Video Lesson: How To Trade Forex With Elliott Wave
    What you are about to see is a condensed, 20-plus-minute version of Jim Martens’ live course on trading with Elliott to an audience of independent investors in Denver, CO, recorded in early November 2007. Here’s what you’ll learn:

    • At its core, Elliott wave analysis is simple. Watch Jim explain why.
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What’s the U.S. Dollar’s Next Move?
Elliott Waves Provide An Answer

This example video features Elliott Wave International Senior Currency Analyst, Jim Martens, using Elliott wave analysis to forecast the U.S. dollar’s near-term moves.

Get all of Jim Marten’s intraday and end-of-day Forex forecasts FREE through May 20.Access EWI’s FreeWeek.

 

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How to Use Elliott Wave Analysis to Boost Your Forex Trading

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Forex Trading using Elliott Wave Theory

Does Gold Always Go Up in Recessions?

Gold: Best Supporting Role In Economic Downturns? Think Again

Gold’s safe-haven status is based on hype, not history 

By Nico Isaac

As I sat down to watch the Oscar pre-show on Sunday night, March 7, one word was repeatedly used to describe the celebrity starlets and their designer duds: GOLD. Gold bustiers and gold lame skirts, shiny gun-metal dresses and glittery sequined gowns all basking in the golden shadow of the final golden statue.

Everywhere you look, from the Red Carpet to Wall Street, gold is definitely in “fashion.” As for why, one word comes to mind: safe-haven. See, according to the mainstream financial experts, the more unstable the global economy, the greater the appeal for the precious metal.

And, with a staggering 17% unemployment rate in the United States, alongside slumping real estate sales, Eurozone weakness, the Greece debt debacle, and so on — the only thing going up is gold’s supposed disaster premium. Here, take these recent news items for example:

  • “Bullion Sales Hit Record In Stampede To Safety.” (Financial Times)
  • “Gold Ticks Higher On Safe Haven Buying. The risk trade is resuming.” (AP)
  • “Gold Rose to 6 ½ Week Highs as the metal benefits from fears over financial instability in general. The market is looking for some security with gold.” (Reuters)
  • “Gold Rush: This is a new round of safe haven buying.” (Bloomberg)

There’s just one problem: The correlation between a falling economy AND rising gold prices is based solely on hype, NOT history.

Download Robert Prechter’s FREE 40-Page Gold and Silver eBook. Is gold a simple buy-and-hold at today’s prices? The independent insights in this valuable ebook deliver Prechter’s complete analysis and help you decide how to – and how not to – incorporate gold and silver successfully into your own investment strategy. Learn more, and download your Gold and Silver eBook here.

Case in point: In the March 2008 Elliott Wave Theorist (republished in his 40-page Gold and Silver eBook), Elliott Wave International President Bob Prechter presents an indisputable case AGAINST the safe-haven status of gold.

Gold is not up in recessions

The first piece of evidence:
The above table showing gold’s performance during the
11 officially recognized recessions beginning in 1945.

Prechter also plotted the Dow Jones Industrial Average into the same period and made this startling discovery: The average total return for the Dow during recessions since 1945 is 6.89%. Taking into account modern transaction costs, the Dow actually beats gold with a 6.87% return.

Gold is up during economic expansions

The most powerful myth-debunking punch of all,
though, came via the second chart of gold’s performance –
this time during periods of financial growth.

In Prechter’s own words:

“All huge gains in gold have come while the economy was expanding… The idea that gold reliably rises during recessions and depressions is wrong. In fact, like most such passionately accepted lore, it’s backwards.”

Now, this doesn’t mean that you shouldn’t own gold in a financial crisis. On the contrary: In chapter 22 of his Wall Street Journal business bestseller,Conquer the Crash, Prechter lists 5 reasons why “you should buy gold and silver anyway.” Gold is “real money,” after all! It’s just that, despite widespread beliefs to the contrary, you shouldn’t expect “huge gains in gold” when the economy contracts.

Download Robert Prechter’s FREE 40-Page Gold and Silver eBook. Is gold a simple buy-and-hold at today’s prices? The independent insights in this valuable ebook deliver Prechter’s complete analysis and help you decide how to – and how not to – incorporate gold and silver successfully into your own investment strategy. Learn more, and download your Gold and Silver eBook here.

Nico Isaac writes for Elliott Wave International, a market forecasting and technical analysis firm.

Does Gold Always Go Up in Recessions and Depressions?

June 4, 2009

By Robert Prechter, CMT

The following article is adapted from a brand-new eBook on gold and silver published by Robert Prechter, founder and CEO of the technical analysis and research firm Elliott Wave International. For the rest of this revealing 40-page eBook, download it for free here.

I have often read, “Gold always goes up in recessions and depressions.” Is it true? Should you own gold because you think the economy is tanking? Whenever we hear some claim like this, we always do the same thing: We look at the data.

The first thing to point out is that gold did not make a nickel of U.S. money for anyone in any of the recessions and depressions from 1792, when the gold-based dollar was adopted, through 1969, a period of 177 years. Well, to be precise, there was a change in the valuation in 1900, when Congress changed the dollar’s value from 24.75 grains of gold, the amount established in 1792, to 23.22 grains, a devaluation of just six percent total over 108 years. The government did raise the fixed price from $20.67/oz. to $35/oz. in 1934, but that action occurred during an economic expansion, not during the Depression. In 1968, gold finally began trading away from the government’s fixed price. Even then, it slipped to a lower price of $34.95 on January 16 and 19, 1970. So the idea that gold always goes up in recessions and depressions is already shown to be wrong. It did not go up in terms of dollars in any of the (estimated) 35 recessions or three depressions during that period.

What almost always does happen during economic contractions is that the value of whatever people use as money goes up as prices for goods and services fall. When gold is used as money, its value in terms of goods and services goes up. But gold can’t go up in dollar terms when gold and dollars are equated. So no one “makes money” holding gold under these conditions. It is a fine point: What tends to go up relative to goods and services during economic contractions is money, and when gold is officially money, that’s how it behaves. What we want to know is how gold behaves in recessions and depressions when it is not officially accepted as money.

Many gold bugs say that because gold was a good investment during the Great Depression, it is a “deflation hedge.” We addressed this topic in At the Crest of a Tidal Wave (1995, p.357) and Conquer the Crash (2002, pp. 208-209). At the time, government fixed gold’s price, so it didn’t go up or down relative to dollars. Gold was a haven during that time, the same as the dollar was, since they were equated by law. But gold served as a haven because its price was fixed while everything else was crashing in price during the period of deflation. Gold bugs like to claim that gold would have gone up during that period had it not been fixed, but the crashing dollar prices for all other things suggest that in a free market gold, too, would have fallen. It would have fallen, however, from a higher level given the inflation of 1914-1929 following the creation of the Fed. So gold became worth more in dollar terms than it was in 1913, which is why it began flowing out of the country. In 1934, the government finally recognized the new reality by raising gold’s fixed price. Since 1970, markets have been in a large version of 1914-1930, except that gold has been allowed to float, so we can clearly see its inflation-related, pre-depression gains.

Observe that gold’s price remained the same for a Fibonacci 21 years after the Fed was created in 1913; it was revalued in 1934. [Ed. Note: For a full chapter on Fibonacci time considerations for gold, download the 40-page Gold and Silver eBook.] Then it held that value for 35 (a Fibonacci 34 + 1) years, through 1969. So aside from the revaluation of 1934, the inability to make money holding gold during recessions, depressions, or any time at all save for the day of the revaluation in 1934 held fast for 56 (a Fibonacci 55 + 1) years following the creation of the Fed. So even after Congress created the central bank, no one made money holding gold in a recession or depression for two generations.

In 1970, things changed dramatically. Investors lost interest in stocks and preferred owning gold instead, for a period of ten years. The same change occurred again in 2001, and so far it has lasted seven years. But, as we will see, recession had nothing to do with either of these periods of explosive price gain in the precious metals.

The period of time one chooses to collect data can make a huge difference to the outcome of a statistical study. If we were to show the entire track record from 1792, gold would show almost no movement on average during economic contractions. If we were to take only 1969 to the present, it would show much more fluctuation. To give a fairly balanced picture, combining some history with the entire modern, wild-gold era, I asked my colleague Dave Allman to compile statistics beginning at the end of World War II. This is what most economists do, because they believe “modern finance” began at that time and that things have been “normal” since then. It’s also when many data series begin. So our study fits the norm that most economists use. It also provides results entirely from the Fed era, making it relevant to current structural conditions.

[Ed. note: To study the six tables revealing gold’s performance record vs. stocks and T-notes since WWII, download the 40-page Gold and Silver eBook.]

Table 1 shows the performance of gold during the 11 officially recognized recessions beginning in 1945. Although one could make a case for different start times, we took the 15th of the starting month and the 15th of the ending month as times to record the price of gold. The results speak for themselves. Even though it is accepted throughout most of the gold-bug community that gold rises in bad economic times, Table 1 shows that such is not the case.

The only reason that the average gain for gold shows a positive number at all is that gold rose significantly during one of these recessions, that of 11/73-3/75. The average gain for all ten of the other recessions is 0.16 percent, almost exactly zero. The median for all 11 recessions is also zero. If we omit the five recessions during which the price of gold was fixed, the median gain is 3.09 percent.

For long-term forecasts and more in-depth, historical analysis for precious metals, including the six revealing tables mentioned in this article, download Prechter’s FREE 40-page eBook on Gold and Silver.

Robert Prechter, Chartered Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crashand Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Is Gold in a Bull Market?

Gold: What’s REALLY Behind the Record Rise, Bull or Bubble?

By Nico Isaac

When prices in a financial market go from Sea Level to Outer Space in a relatively brief time, two scenarios are at work — and they both start with the letters “B-U.”

When a precious metal goes from being a popular long-term investment of buy-and-holders to the quick, get-away “vehicle” of day-traders, two scenarios are at work — and they both start with letters “B-U.”

And when the majority of mainstream pundits see a “new paradigm” in which prices continue to rise indefinitely, two scenarios are at work – and, you guessed it, they both start with the letters “B-U.”

Enter: the recent Gold Rush of 2009, when ALL of the above conditions apply. Everyone from hedge funds to housewives now hustle to hitch their asset wagon to the rising gold star. Which begs this question: Which of the possible two scenarios are at work: B-U-ll
— Or B-U-bble?

Here’s the difference: A genuine bull market is driven by a self-sustaining internal dynamic that’s reflected by a host of technical indicators. A Bubble, on the other hand, is the result of untenable psychology that could shift at any moment and bring prices plummeting down.

For long-term forecasts and more in-depth, historical analysis for precious metals, download Prechters FREE 40-page eBook on Gold and Silver.

It goes without saying into which category the mainstream experts put Gold: namely, a new bull market that has years, if not decades more to soar.“Gold Will Hit $2,000 an ounce,” reads an October 8 Market Watch. And — “Gold Has More Upside… The metal’s bull run is just getting started,” adds a same day Barron’s.

I found hundreds of news items which agree about the long-term potential for gold’s uptrend. But not a single one could tell me why the rally would continue, other than because the experts say so.
To know whether a diamond is real, it must cut glass. And, to know whether the bull market in gold is real, it must encompass at least one of these FOUR traits:

  • A surge in demand that outpaces supply
  • A falling stock market, which raises the “safe haven” appeal of precious metals.
  • A real (not imagined) threat of inflation
  • An increase in value relative to major foreign currencies

Right now, the Gold market can NOT check off a single one of these items. Case in point:

Supply: Demand for gold from jewelry makers – which comprises 60%-70% of the market – has plummeted to its lowest level in 20 years.

“Safe haven” appeal: From its March 2009 bottom, the U.S. stock market has soared 50% right alongside rallying gold prices.

Inflation: As the October 2009 Elliott Wave Financial Forecast (EWFF) notes: An increase in money supply is only inflationary if it is used to RAISE the total amount of credit. This is NOT happening, as both bank credit and consumer credit levels are contracting for the first time since World War II.

A gold rally in other currencies: Again, the October 2009 EWFF presents the following close-up of Spot Gold prices VERSUS Gold denominated in foreign currencies such as the Canadian dollar, the Australian dollar, the euro, franc, pound, and yen since 2007.

Major non-confirmation in Gold

The major non-confirmation between these two markets is clear, as is the overlying message: IF demand for gold truly outweighed supply, then its value as measured in other currencies would increase.

The rise in gold is primarily the result of speculation and a falling U.S. dollar. These are exactly the “untenable” forces that contribute to a Bubble, not a genuine Bull market. The difference is only a matter of time.
For long-term forecasts and more in-depth, historical analysis for precious metals, download Prechters FREE 40-page eBook on Gold and Silver.

 

Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Death of the US Dollar

Death of the Dollar, Again: Before You Mourn, See This Chart

The following article is based on analysis from Robert Prechter’s Elliott Wave Theorist. For more insights from Robert Prechter, download the 75-page eBook Independent Investor eBook. It’s a compilation of some of the New York Times bestselling author’s writings that challenge conventional financial market assumptions. Visit Elliott Wave International to download the eBook, free.

By Nico Isaac

If you want the latest news on the U.S. Dollar Index, try a search under its new ticker symbol, RIP. — as in, “rest in peace.” Let the record show: In the early morning hours of Tuesday, October 6, the mainstream financial community officially declared “The Demise of the Dollar” (The Independent).
The “coroner’s report” cites these details as the causes of death:

  • An alleged (and later denied) secret meeting among leaders of certain Arab States, China, Russia, and France which aimed for the immediate discontinuation of oil trading in U.S. dollars.
  • And, an open statement from one senior United Nations official that proposed the dollar be replaced as the world’s reserve currency.

In the words of a recent Washington Post story: “The growing international chorus wants the dollar replaced… a move that would end the greenback’s six-decades of global dominance.”

And with that, the line between negative sentiment — AND — “EXTREME” negative sentiment was crossed. It occurs when the beliefs about a market lean so far over in one direction, that the boat investors are sitting in is about to tip over… Just like the last time.

Case in point: Spring 2008. The U.S. dollar stood at an all-time record low against the euro after plunging more than 40% in value. And, according to the usual experts, the greenback was “dead”-set to meet its maker. On this, these news items from early 2008 say plenty:

  • “The dollar is a terribly flawed currency and its days are numbered.” (Wall Street Journal quote)
  • “It’s basically the end of a 60-year period of continuing credit expansion based on the dollar as the world’s reserve currency.” (George Soros at the World Economic Forum)
  • “Greenback is losing Global Appeal… the ‘Almighty’ Dollar is Gone.” (Associated Press)

YET — from its March 2008 bottom, the U.S. dollar came back to life with a vengeance, soaring in a one-year long winning streak to multi-year highs. In the most current Elliott Wave Theorist (published September 15, 2009), Bob Prechter presents the following close-up of the Dollar Index since that trend-turning bottom. (some Elliott wave labels have been removed for this publication)

Dollar Bulls at New Low

At a measly 6% bulls, the bearish dollar boat tipped over. The situation today is even more remarkable: The percentage of bulls is lower, at 3-4%, while the dollar’s value is higher than the March 2008 level.

It’s crucial to understand that markets don’t necessarily respond to sentiment extremes immediately. But, such extremes do indicate exhaustion of the trend — which is usually the opposite of what the mainstream expects.

For more information, download Robert Prechter’s free Independent Investor eBook. The 75-page resource teaches investors to think independently by challenging conventional financial market assumptions.

 

Robert Prechter, Chartered Market Technician, is the world’s foremost expert on and proponent of the deflationary scenario. Prechter is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crash and Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.

Gold is Money

Bob Prechter: Gold is Still Money

By Robert Prechter, CMT

The following article is excerpted from a brand-new eBook on gold and silver published by Robert Prechter, founder and CEO of the technical analysis and research firm Elliott Wave International. For the rest of this fascinating 40-page eBook, download it for free here.

Have you ever traveled abroad and taken a look at the local currency and wondered how the citizens of that country could take seriously what looks like “Monopoly money?” I’ve got news for you: You’re using the same stuff. Monopoly money is the money over which some government has a monopoly. It is the currency of the realm only because the state makes it illegal to use any other type.

Promissory notes issued by a state and declared the only legal tender are always doomed to depreciate to worthlessness because of the natural incentives and forces associated with governments. A state cannot resist a method of confiscating assets, particularly one that is hidden from the view of most voters and subjects. By extension, it is unreasonable to advocate a standard for such notes, which is simply a state’s promise that its currency will always be redeemable in a specific amount of something valuable, such as gold. A gold standard of this type is only as good as the political promises behind it, reducing its value to no more than that of paper. It could be argued, in fact, that a state-sponsored gold standard is far more dangerous than none at all, as it imbues citizens with a false sense of security. Their long range plans are thus built upon an unreliable promise that the monetary measuring unit will remain stable. Later, when the government’s “IOU-something specific” becomes, as Colonel E.C. Harwood put it, “IOU nothing in particular,” reliability disappears and the arbitrary reigns. Although the populace tends to retain its confidence in the currency for awhile thereafter, the ultimate result is chaos.

The only sound monetary system is a voluntary one. The free market always chooses the best possible form, or forms, of money. To date, the market’s choice throughout the centuries, wherever a free market for money has existed, has been and remains precious metal and currency redeemable in precious metal. This preference will undoubtedly remain until a better form of money is discovered and chosen. Until then, prices for goods and services should be denominated not in state fictions such as dollars or yen or francs, but in specific weights of today’s preferred monetary metal, i.e., in grams of gold. Anyone might issue promissory notes as currency, but the acceptance of such paper certificates would then be an individual decision, and risks of loss through imprudence or dishonesty would be borne by only a few individuals by their own conscious choice after considering the risks. Critical to the understanding of the wisdom of such a system is the knowledge that private issuers of paper against gold have every long run incentive to provide a sound product, just as do producers of any product. As a result, risks would be minimal, as the market would provide its own policing. Thievery and imprudence will not disappear among men, but at least such tendencies in a free market for money would not have the potential to be institutionalized, as they are when a state controls the currency. From a macro economic viewpoint, occasional losses resulting from dishonesty or imprudence would be extremely limited in scope, as opposed to the nationwide disasters that state controlled paper money has facilitated throughout history, which have in turn had global repercussions. As Elliott Wave Principle put it, “That paper is no substitute for gold as a store of value is probably another of nature’s laws.”

That being said, it is also true, and crucial to wise investing, that markets come in both “bull” and “bear” types. Being a “gold bug” at the wrong time can be very costly in currency terms. For nearly three decades, gold and silver’s dollar price trends have confounded the precious metals enthusiasts, who for the entire period have argued that soaring gold and silver prices were “just around the corner” because the Fed’s policies “guarantee runaway inflation.” Yet today, 29 years after the January 1980 peaks in these metals and despite consistent inflation throughout this time, their combined dollar value (weighting each metal equally) is still 40 percent less than it was then.

It is all well and good to despise fiat money, but it is hardly useful to sit in gold and silver as if no other opportunities exist. In contrast to the one-note approach, which has had an immense opportunity cost since 1980, competent market analysis can help you make many timely and profitable financial decisions in all markets, including gold and silver.

For more in-depth, historical analysis and long-term forecasts for precious metals, download Prechter’s FREE 40-page eBook on Gold and Silver.

Bob Prechter on Silver & Gold

In case you hadn’t noticed: Over the past year of financial turmoil, the “safe haven” premium of precious metals has offered about as much support as a rubber ducky in a tsunami. Despite a string of powerful rallies, silver and gold remain well below their March 2008 peaks.

It goes without saying that the greatest opportunities in precious metals were not had by those who played the “disaster hedge” card; but rather by those who timed the trends as they developed, regardless of the fundamental backdrop.

Bob Prechter is in the latter group. Amidst the buzz and whirl of the most bullish backdrop in precious metals’ recent history, gold and silver prices soared to new, all-time highs and calls for a “New Gold Rush” and “$30 Silver” flooded the mainstream airwaves. Yet Bob alerted subscribers to an approaching top in the March 14, 2008 Elliott Wave Theorist.

  • “The wave count [in silver] is nearly satisfied, though ideally it should end after one more new high. If this analysis is accurate, and silver does peak and begin a bear market, gold is likely to go down with it.”

 

  • In the days that followed, prices in both metals fell off a cliff. In turn, Bob was asked to address his exceptional call for a turn down in a March 19, 2008 Bloomberg interview. Here are of excerpts from that conversation:

 

Bloomberg: “Why did you put out that call on Friday (March 14) about a peak in precious metals?”

  • Editor’s Note: You can download Bob Prechter’s 5-page report, Gold & Recessions, free from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

 

  • Bob Prechter: “One of the reasons is that it seemed like an absolutely sure thing. We track several indicators of sentiment. One of them is the Daily Sentiment Index (DSI). That reached 98% bulls on a one-day basis going into this last high. We were tracking silver as well… as it is clearest in our minds. Now, at the time, we needed one more slightly new high. That happened Monday morning and silver dropped 15% in 48 hours. That’s a heck of a reversal and I think it’s real.”

 

“Real” indeed: From their March peaks, gold prices plummeted 34%, alongside a 60% sell-off in silver before hitting the breaks in October. Here, the October 2008 Elliott Wave Financial Forecast prepared for a corrective rebound and wrote:

  • “Silver traced out a five-wave decline from its March peak…Gold should also rally as silver pushes higher. Once silver’s rise is exhausted (initial target: $15.15), the larger downtrend should resume for both metals.”
  • A powerful, four-month bounce ensued in both metals: Gold prices came within kissing distance of its March peak before turning down on February 20; silver followed suit — a fulfillment of this bearish, near-term insight presented in the February 23 Elliott Wave Theorist:
  • “Silver has been clear as a bell. Silver is due to turn back down, and gold, which is back at $1000/oz, is likely to follow.”

 

  • Since then, it’s been a steady march lower for both metals. Obviously, EWI’s forecasts do not always prove this accurate. Yet in this case the analysis speaks for itself.

 

 

For more metals analysis from Bob Prechter, download Gold & Recessions a free 5-page report from Elliott Wave International. It features 63 years of historical analysis that reveals how gold, T-notes, and the DJIA have performed in recessions and expansions.

Robert Prechter, Chartered Market Technician, is the founder and CEO of Elliott Wave International, author of Wall Street best-sellers Conquer the Crashand Elliott Wave Principle and editor of The Elliott Wave Theorist monthly market letter since 1979.