Luongo: False Move Down in the Dollar Kills Rally in Gold
Luongo: False Move Down in the Dollar Kills Rally in Gold for Money and Markets
One of the hardest things for people wrap their heads around when looking at markets is that for a long-term change in sentiment to occur, the existing status quo must be broken down. In pricing terms that means having to wait while the common wisdom of the market works through its disbelief that conditions underlying the markets have changed.
In the gold community there is a belief that the U.S. dollar is doomed to oblivion and to be replaced with sound money. I’m in that camp, don’t worry. The problem is that most people aren’t. And the belief that central banks have things well in hand, like any other nigh onto religious belief, is hard for people to shake off.
Therefore, it usually takes getting a majority of the market on the wrong side of history, and badly so, before the shift in sentiment, where new secular trends can occur.
Martin Armstrong likes to call this the “false move.” It’s the move up or down that is counter to the larger trend, but which traps a huge percentage of the market short when they should be long and vice versa.
Such is the case with the U.S. dollar right now. There’s a lot of talk about the dollar being replaced as the world’s reserve currency. Every day there’s another headline concerning someone, usually Russia, making a deal to cut the dollar out of a portion of their trade with someone else.
The latest headline is between Russia and the EU setting up the infrastructure to bypass the dollar in energy-related trade. And since Russia does a brisk business in oil and gas with Europe, this is kind of important.
The gold community invariably pounces on this and thinks gold should move up on such news. When it doesn’t, cries of manipulation abound (not that there isn’t) while gold continues to do its thing, moving to its own beat.