Tuesday, August 16, 2005, 3:42:00 PM EST
Nothing New: Dollar Weakness Equals Gold Strength
Author: Jim Sinclair
Dear CIGA:
If you want reasons for gold moving higher we will review the economics and thinking of the day. However, it is all hot air because the action in gold fulfilled what we said last evening.
For gold to rise off the trend line we needed the dollar to weaken, hopefully overnight. Well it took until 8AM this morning for the dollar to turn south and then gold turned north rising to a high of $451.80 off a low of $446.20. It actually showed more enthusiasm for the upside than the dollar had for the downside.
Gold is a tad rich now on the very short term trading side but nonetheless is actually doing quite well ona daily and weekly basis, holding open the potential of going for the old high. The US dollar will be the determinant so for the gold trader the dollar bears the closest focus. For the investor, the magnet is pulling hard from $480 and $518-$529. For the investor it matters not if that is accomplished now or in the first quarter of 2006.
Click here for the US dollar and gold charts.
Letters
Dear Jim:
In my life the most influential individuals have been and always will be Mr. Jim Sinclair and Mr. Jim Rogers. I have made money on both the men above. By mere suggestions or secular changes within the market. I'm a bit confused at the moment as Jim Rogers thinks Central Banks are loaded with gold and could sell, thus depressing gold.
Mr. Sinclair sees gold going to $1650 and I suspect it will by 2012. My question to Mr. Sinclair: What risk do the Central Banks hold over us gold bulls based on supply/demand?
I Remain,
CIGA Michael P.
Dear Michael:
That argument has lurked in the halls of gold all the way from 1968 to 1980. IMF and Central Banks did sell. You may recall the scheduled selling by the IMF and the unscheduled selling by various central banks.
With all the respect due to Mr. James Rogers for his many accomplishments, he is now in “my neighborhood.” Clearly, he sees gold as a commodity because such a statement is totally devoid of recognition that gold and the US dollar have an inverse relationship that will not be broken. That’s because gold is a CURRENCY. By this stated position he is saying that one should hold their losing positions and sell their winning positions which if true would certainly have quickly destroyed his career as an investor.
His opinion of gold smacks of Columbia University thinking and an Ivy League type background. He has a George Soros background and knows the potential extreme risk that the US dollar portends. Clearly he fails to connect the gold and currency but he will learn.
Central Bank selling in the 1970s allowed big buyers to obtain large gold positions at singular prices in many cases free of commission costs. Therefore Central Bank selling was in practice one of the key bullish factors that resulted in gold rising to $887.50
I respectfully disagree with Mr. Rogers. Exactly who is right will be seen soon and certainly in 2012.
Regards,
Jim
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Grüsse
Edel Man