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Dollar Flash Crash–Harbinger?

20 Mar

The dollar has been on an upward tear since July of last year.  It’s value, as measure on the US Dollar Index (USDX) rose 25% in less than 8 months.  (See my previous article USDX Deflation.)

On Wednesday, March 18th, the fiat dollar’s perceived value fell nearly 2 points.  On Thursday, the dollar popped back up by most of 2 points.  Today (Friday), as I write, the dollar is down almost 1 point.  This volatility is at least unusual and may be unprecedented.  This USDX volatility almost certainly signals a significant change in the direction of the USDX “trend”.  That trend has been rocketing upward for the past 8 months.  Odds are, that trend is about to reverse.

If it does, we can expect the prices of items like crude oil and gold to begin to rise.

The following video–especially its first 3 minutes or so–comments on this week’s “flash crash”.

video    00:09:35

 

 

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5 responses to “Dollar Flash Crash–Harbinger?

  1. Toland

    March 20, 2015 at 3:15 PM

    Al, you mentioned that crude oil and gold could be ready to go up. If you compare these two commodities to each other, as economists routinely do as part of their basic analysis, gold is already up.

    Since 1946, the historic ratio between the price of an ounce of gold and the price of a barrel of crude oil has meant an ounce of gold buys, on average, 15 barrels of oil.

    At the moment however, an ounce of gold buys 27 barrels of oil. Way to go, gold!

    So gold has actually been on a major upswing of late, in terms of another major commodity (as opposed to a mere fiat currency).

     
  2. Roger

    March 20, 2015 at 6:54 PM

    @Toland

    I agree that looking at the value of gold in terms of other commodities gives a clearer picture.

    Because the USDX measures US dollar strength in terms of other fiat currencies only, you wouldn’t expect much connection between the USDX and gold, which is the foremost non-fiat currency. Some connection perhaps, but a weak one.

    For example, in 2009, when the USDX was at 74, gold was around $1,050 an ounce.

    Does this mean, if the USDX falls from its current value of about 100 back to 74, we should expect gold to likewise return to $1,050 an ounce? Of course not.

    You mentioned how many barrels of crude oil an ounce of gold buys, historically. Here’s another one:

    Since the year 2000, an ounce of gold has bought 60 ounces of silver, on average. Right now an ounce of gold will buy 70 ounces of silver.

    So yeah, you and Al are correct that gold has actually been doing well recently, despite gold’s apparent decline if you only consider its price in US dollars.

     
  3. Henry

    March 20, 2015 at 8:30 PM

    Never mind evaluating the arguments presented in this video. Its hypnotic graphics with foreboding music should be enough to implant in you the abiding sense that all is not well.

     
  4. palani

    March 21, 2015 at 8:27 AM

    Gold is fungible. A FRN or any other fiat paper money is NOT fungible.

     
    • pesky nat

      March 21, 2015 at 4:39 PM

      @ A FRN or any other fiat paper money is NOT fungible.
      We can still have fun with it & so can “they”. Also, it can help with some fungicide problems,an agent that destroys fungi.

       

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