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Minyan Mailbag: Dollar Rally Getting Legs?




I agree with you that gold and silver will most likely make a pull back, and I think your argument that it is almost impossible that so many people are right at the inception of a bull market is very valid.

I think it also has to do with the wide perception that the dollar is moving lower. Like the metals (although the reverse) I think that the dollar is going lower in the long run, however that could very well be after we have seen another pretty decent rally against most currencies and I believe if that is the case that it will pull gold lower.

Higher interest rates and a rising dollar in my mind will force more people to unwind the dollar carry trade and once this starts it could drive the dollar up further once the rally gets some legs.

In the long run I think the dollar will go lower and gold/silver higher but we could see the reverse happening for a while.
Just some thoughts from my side.

Minyan Gerry

Minyan Gerry-

I found your take on the dollar interesting so I pulled up a chart of the US Dollar Index (DX/Y) to get a view of where we are from a contextual standpoint.

The chart below shows the violation of the downtrend line that (though not visible on the chart due to size constraints) stretches back to January 2002. Recently the DX/Y has pulled back to new trendline support drawn from the December 2004 lows. A move below 86 would suggest a retest of those lows. Meanwhile, a move above 89 would suggest a new leg higher is underway.

NYCE U.S. Dollar Index Spot (DX/Y)
Chart courtesy Dorsey Wright & Associates

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