Commodities, Gold, and the Dollar Not Forecasting Inflation/Recovery Yet
Below are historical examples (from 2008) of how to use technical analysis in economic forecasting and monitoring Fed polices.
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Countless government bailouts and liquidity facilities have flooded the financial system with new funds. It is almost universally accepted these practices will be inflationary once the economy and credit markets find some footing. Therefore, it is logical to assume assets that can help protect purchasing power would be in demand if we were on the cusp of an economic recovery. Inflation-protection assets and weak dollar assets are not in great demand and remain firmly in downtrends. We would expect oil, gold, and TIPS to show some legs if we could see light at the end of the economic tunnel.
Commodities - CRB Index - Price Trend
Gold - Price Trend
Oil- Price Trend
If the current rally can continue, we will see some meaningful improvement in the charts. Many charts have not yet shown even very short-term improvement (see charts of commodities, gold, and oil above). When the appetite for risk returns, we would expect to see rapid and readily apparent reversals in many charts, including the U.S. dollar, oil, and yen. As of Friday's close, the yen and the dollar have done nothing to suggest any radical shift in terms of the risk appetite of investors.
Yen - Price Trend
U.S. Dollar Index - Price Trend
We will continue to monitor developments on both the fundamental and technical fronts. If action is needed (bullish or bearish), we will change when the facts change.
Ciovacco Capital Management
Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com
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