Right now the incumbent administration is riding high. Popularity and management poles are reporting that President Bush is clearly electable if present circumstances remain unchanged. As the democrats hunt for points of weakness, they come up with the declining US Dollar as a potential avenue of attack.
Notice recently that the media is featuring the benefits of a lower dollar on corporate earnings, business activity and employment. They have even defined the present dollar decline as “orderly.” The dollar decline was described by one media outlet today as a “fire sale on everything assembled, manufactured or grown on US soil.”
It is almost downright patriotic to be short the dollar if you listen to these puppets spout their spin. Clearly, anyone attacking the incumbent administration based on the lower dollar position themselves in contrast with the sentiment expressed in the media.
A lower dollar results from keeping the shortest interest rates around the 1% level. We know that international investment firms have said that a discount rate of 1% will push gold higher.
Because gold and the dollar move lock step together, it is reasonable to conclude that any reaction in gold from either the recent nip at $419.70, $430.30 or in the $450s, will be of short duration. For traders like myself, there is a living in gold buying the dips and selling the pops without disturbing your core position.
As the Euro Spins
When we spoke about the Euro at 1.23 with a high side of 1.28-1.30, the naysayers came out in opposition to your faithful servant, Jim Sinclair. You have to love the Euro value spin that is now being produced for political reasons. Here it is. Ms. Talking Head said: “I have calculated the Euro model and back tested it thereby discovering that in the last major currency adjustment, rates of 1.75 to the dollar existed. Therefore my prediction for the Euro to settle down around 1.35 in 2004 is conservative.”
How about we expand on that a little. Jim Sinclair says: I have looked at a long term chart on gold and discovered that when the Euro Model you mention was hypothetically at 1.75 to the dollar, the gold price was $887.50. Therefore, I expect to see gold trade at $684.60 when the Euro trades at 1.35.
Gold to Trade at $684.60
Using the same spin being used to forecast the level of the Euro, recognize that 1.35 to the US dollar is a prediction of the gold price at $684.60. Think about this before you dump your favorite gold shares for peanut profits or dump all your futures and gold options because a community paid advisor recommended you dump your February gold calls at the market.
Cut back if you want but buy the dips while being fast on your toes. A close over $419.70 will take you into the $430s so fast it will be a giveaway. This time your risk is missing the boat. How do you know that we are not now on the way to $684.60? Personally I believe gold is going there and higher.
The reason is simple. It is officially good for the US dollar to go lower and the dollar and gold are connected at the hip. Gold traded at $887.50 when the Euro (hypothetically) was at 1.75 to the dollar. With 1.35 as a common view for the Euro in 2004, 1.35 over 1.75 x $887.50 = $684.62.
That is simple enough for international investment firms to understand so there is your prediction by four former members of the Gold Cartel.
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