Next US Dollar Peak Is Catalyst for Precious Metals, Hard Assets
2013 will mark an important transition year as the equity market is likely to make a cyclical peak while commodities make an important cyclical bottom.
First let's take a look at gold priced in US dollars and then gold priced against the inverse of the US dollar (a foreign currency basket represented by the PowerShares DB US Dollar Index Bearish ETF (NYSEARCA:UDN)). Note that gold/UDN is often a leading indicator for gold in US dollars. Gold/UND bottomed in the summer of 2008 and made a higher low in October, when gold bottomed. Gold/UDN broke to new highs in early 2009 while gold didn't break to new highs until September 2009. The same happened in early 2010 as gold/UDN broke out first. At present, there are no major divergences but gold/UDN has been quite a bit stronger than gold in recent weeks.
Meanwhile, we have similar observations when looking at commodities via the CCI and UDN. During 2010 CCI/UDN broke to new highs in the spring while CCI didn't break out until September. CCI/UDN peaked ahead of the CCI by a few months in early 2011. Currently, CCI/UDN is showing a positive divergence. A close above 22 would be quite telling as commodities would be at 18-month highs when priced against foreign currencies.
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