The Dollar-Decline Cycle
Gary Christenson | Oct 21, 2015 10:53AM ET
The US Dollar Index hit a low in 1995, a high in 2002, a low in 2008, and a recent high in 2015. Examine the following 20 year chart of the dollar.
Note that the vertical blue lines are 79 months apart and show approximate low, high, low, and high cycle extremes. I have noted the dates for the weekly low and high closes near the green and red circles.
Now look at a similar chart of the S&P from a month ago.
Dollar lows (May 95 and Mar 08) were separated by about a year from S&P lows (June 94 and March 09), and dollar highs (Feb. 02 and Mar 15) occurred near S&P highs (Aug 02 and May 15).
What else?
The last dollar high (February 2002) was followed by about 6 years of declining dollar prices until it hit a cycle bottom in 2008.
The S&P had already begun a decline of over 50% by the last dollar top in 2002.
The S&P looks like it has currently begun a decline from its May 2015 top that is consistent with the dollar peak in March 2015. More QE or not, look out below!
If that 6.5-year dollar high-low cycle continues, it suggests a dollar low in 2021. The world will be quite different after six years of dollar decline against other currencies and gold.
Gold and silver prices will benefit from a multi-year dollar decline and a substantial correction in the S&P.
Geopolitical Fundamentals
While Russia is bombing ISIS in Syria and consolidating their influence in the middle-east, the US bombed a hospital in Afghanistan and changed the “spin” on the story at least four times. This could be symbolic of a decline in US leadership and political influence in the middle-east and the beginning of a long-term decline in the US dollar.
China has initiated a global alternative to the SWIFT system – the China International Payments System (CIPS). This will weaken US global financial control and weaken the US dollar influence on global trade and other economies.
Get The News You Want
US official national debt exceeds $18 Trillion and unfunded liabilities are perhaps $100 - $220 Trillion. This is a problem – truly an understatement. However, we are now in the “silly season” when we elect a new president, so publicly speaking about honest accounting, a reasonable tax law, balanced budgets, and sane financial policies has been banned at least until 2017. Uncontrolled spending, massive and ever-increasing debt, unaddressed structural problems, and lack of political leadership also suggest a continued decline in the dollar.
Support for the US dollar has been based on the “petrodollar” – required purchases of crude oil with dollars – and the US military – accept US Treasury debt in exchange for your goods and oil or face consequences. Both of these supports for the dollar are clearly weakening, and that indicates additional dollar decline, or collapse, in the years ahead.
BOTTOM LINE
- Expect continued US dollar weakness for several years.
- Expect stock and bond markets to “regress to the mean” – substantially lower.
- Expect gold and silver prices to benefit from dollar weakness and US geopolitical difficulties. $5,000 gold will not happen this year but it is quite possible by the election in 2020. Much higher prices are likely if central banks and governments choose to push the US into a hyperinflationary collapse.
And finally, buy gold and silver while supplies at these repressed prices (thank you TBTF banks) are still available.
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.