Elliott Wave 5.0 "Reboot"

Sunday, March 3, 2013

Impending Collapse Of The US Dollar and The Gold Price!

We have been hearing so much about the impending collapse of the US dollar, I have added a few links to those that are calling for a US dollar implosion. As I write this the USD Index is sitting just below 82 and gold is at about $1580
                  Dollar Collapse - Is a US Dollar Collapse Imminent
                     PressTV - US dollar to collapse in 2013: Economist
       Peter Schiff: Market-Crushing Treasury Collapse To Hit Around 2013 - Forbes
                Peter Schiff - Economic Collapse 2013 - YouTube

Lets round off the USD index to 82 points leaving us with 82 points to go for a complete collapse to zero. In 2008 the US dollar hit the lowest point in it's entire history going back over 200 years which bottomed around 71 points. All the experts at that time were telling us the same thing again, about the impending doom and gloom surrounding the US dollar. We all heard the stories about gold going to $5000-$10000. None of this has happened!

We have been told by the deflationists and the inflationists that a depression would develop. Prechter and his deflationary depression scenario have been telling us that the USD will explode in value causing all assets to decline by more than 90%. The inflationist have been calling on the USD to implode. Two extreme opposing opinions!

I have gone over charts in the USD going back to the depression where you would think that the US should have imploded. It did not, the USD at that time rallied and rose in value dramatically, even as debt loads increased. After 1932 the USD started a major decline that is still going on today but looking back at this decline, it produced a roaring bull market lasting 68 years. Silver inversely reflected the US dollars value much better than gold, as gold was fixed or guaranteed by the US government. Of course the US government stole all the gold from it's citizens a few years later.

From 2002 to 2008 the US dollar imploded by about 50 points and in those 6 years, gold reacted perfectly and charged up from about $255 to $1000.
Then the crisis hit and we suffered a major market meltdown. What did the US dollar do? It rallied in a near vertical move and got stronger and the gold price crashed $300 down to $700 in less than a year. This action is what I would expect in a deflationary move. Any market meltdown has it's roots with a potential liquidity crisis forcing investors to sell anything or everything to raise cash.

Modern countries do not go away because their currency implodes or disappears, they just issue a new currency. I think the US has done this twice already and China has done it many times in it's history. The super US dollar bears like Peter Schiff are forecasting the US dollar to implode from todays levels, pushing gold to $5000. This makes no sense as gold would have to more than triple while the US dollar moves only 82 points. Who in their right mind would take US dollars for gold if the USD is going to zero? Who in their right mind would buy gold at $5000 thinking it will protect them from inflation?

The last greatest fool that buys gold at $5000 will have a serious problem once he decides he needs cash from his gold hoard. If he is an American based investor, or bough gold with US dollars, is he going to sell his gold for US dollars, which is now worthless, or put it into a trustworthy currency like the Euro, (just kidding). What do you think the Canadian dollar is going to do when the US dollar starts imploding? It would go through the stratosphere!

The super US dollar bears are also saying that the T-Bonds will implode right along with the US dollar as countries unload US denominated debt. When bonds implode this would be devastating for the price of gold as gold cannot compete with higher interest rates. A prime example would be the crash of gold in 1980 when interest rates topped out well over 15 %.

Whenever you see a extreme price in anything, low or high, and the majority are pumping it then stop and ask yourself, Who is left to get in? Who are these experts broadcasting to trying to convince them that there are many more fools out there willing to take gold from your hands after $5000?

This monthly chart of gold shows a large degree trend line where it would take another 100 years for gold to reach $5000. At a bit over $2200 gold would come up to major resistance once again. If we are lucky and gold is in a 4th wave in Primary degree then we could see a pop above $2000. Then for this entire gold bull market to correct it would have to crash below $850 dipping into the price territory of the previous 4th wave of one lesser degree. 

 It is always irrelevant what gold price forecasts these analysts come up with, as I am only concerned in how it is going to get there! Gold has no problem crashing $300 or more in a very short period of time, and what the super gold bulls are telling us is,"No", "It's different this time".  Any potential 5th wave up is not the beginning of a bull market it is the end of a bull market. 

Gold is also a very good example where the previous 4th wave guideline failed, and my bet is that it will not fail two times in a row. 


Updated March, 4, 2013

I have added the US dollar index as the USD is forecast to implode driving gold to $5000. What I see and what the experts are forecasting are totally different. The main reason is that most all experts including most Austrian Economists are basing all forecasts on fundamental reasoning. The last thing that markets work on is fundamentals, they have a habit of working the complete opposite of fundamentals. Markets work on liquidity and the full spectrum of human emotions. 

When we look at the US dollar weekly chart, we can see that these forecasts have been made when the USD was around 82. Since 2008 we also have higher lows, which is the sign of the bull, and at the same time we have declining tops, which is the sign of the bear. We are now approaching this top line which puts us at the extremes of the apex in a scalene triangle. Short term the US dollar bears are going to be right as the USD can crash in a "ABC" like fashion, with the "B" wave still in progress. Gold has reacted perfectly to the persistent rally in the USD, so this relationship is still there, even if we have short term divergence. 

The fundamentalists have been harping about the USA's 16 trillion dollar debt, but 10 years ago they were all crying, that the trade deficit was a major problem. When was the last time you heard fundamentalists scream about the trade deficit?  When the majority are harping on this or that fear, you can bet that it becomes irrelevant quickly, as most all fears are misplaced to start with anyways.  When the mainstream media and internet consistently blasts out doom and gloom, who in the hell are they trying to impress? No clear thinking contrarian gets rattled by this type of fear mongering.  

The fear mongers are trying to tell you to prepare the wheelbarrow because you will need it to buy a loaf of bread! In modern times your debit card is the wheelbarrow.