Gold, Crude, the Dollar and Donald Trump

Since the 1970s, gold and crude oil have tended to rise and fall together as illustrated by the chart below, with gold and crude prices adjusted for inflation.

Spot Gold and WTI Light Crude

The reason is not hard to find. When crude prices rise the Dollar weakens. The chart below compares crude, adjusted for inflation, against an inverted Dollar Index. Major rises in crude are normally accompanied by a similar rise in the inverted Dollar index (signaling Dollar weakness).

WTI Light Crude and inverted Dollar Index

However, the inverse is not always true. The 1986 Plaza Accord — where Japan and Germany agreed to scale back Dollar purchases — caused a sharp fall in the Dollar without a corresponding rise in crude.

If Donald Trump successfully negotiates a new trade deal with China, cessation of Chinese purchases could spark a similar decline of the Dollar.

Dollar Index

The Dollar Index is currently consolidating between 88.50 and 91. I suggested last week that it may be forming a base. But rising Crude prices add downward pressure on the Dollar.

Dollar Index

And Gold is the likely beneficiary.

Spot Gold

Breakout above $1375/ounce would signal a strong advance.

We can’t blame Donald Trump for the rise in geo-political tensions around the world. Those are more a legacy of the previous administration’s failure to enforce red lines. But Trump’s communication style does tend to inflame issues and tensions in Syria, North Korea, South China Sea, Ukraine, the Balkans and Baltic states — to name but a few — are also likely to fuel demand for gold as a safe haven.

4 thoughts on “Gold, Crude, the Dollar and Donald Trump

  1. Kailee says:

    The’res nothing like the relief of finding what you’re looking for.

  2. I’ve been reading your posts and always looking forward to new ones. I found them very helpful. May I ask a question about crude oil. I see long-term as well as short-term bearish divergence on the Trend Index of oil. Does it warn of long-term and short-term selling pressure? But oil and many oil stocks seem to be in an uptrend now. Have a great new week!

    Humblenewbie

    • ColinTwiggs says:

      I normally use 13-week Trend Index. Bearish divergence on cl_cm looks weak.

      What would make a strong Trend Signal (or Money Flow) bearish divergence?

      1. troughs that cross below zero;
      2. descending troughs; and
      3. descending peaks with a sharp difference between the first and second peaks

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