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Precious Metals And The Dollar

he bear market in gold, silver and mining shares continues as we start the month of September. We have recent calls from investment banks for ever lower prices, perhaps more a symbol of how out of favor this sector is, than any accurate comment on future values. We also have news this week pointing towards more monetary easing in Europe at the same that (supposedly) central bankers in the US are going to be able to begin tightening. Other apparently bullish news for the US economy and its currency comes from those calling for an age of American energy independence. While the greenback has hardly exhibited the kind of bullish moves higher one would expect during a secular bull market in stocks (the dollar is basically stuck in the same range as that of the last 6 years), hope springs eternal for those bulls who want to make the case that a new era of a strong dollar is going to be the final nail in the coffin for the precious metals.

While the prices of metals like gold or silver can rise without a significant drop in the dollar index, it is likely that a resumption of the dollar’s decline will signal that new highs for gold and silver, and therefore a resumption of the secular bull market in the metals, is underway.

Fast forward seven years or so to 2002-3, and the dollar moved in a different direction (down), thus signalling a renewed secular bull market in the precious metals, as well as in commodities generally. Unlike the example of the mid-1990s, the precious metals stunned the skeptics into silence as they embarked on a powerful move to new high after new high that, at least, for now, ended in 2011.

In the years ahead, gold and silver bulls should pay attention to the dollar chart. There is nothing particularly unusual about a bear market in precious metals lasting 3-5 years, but whether or not the recovery in gold or silver can take each respective metal back above 2000 and 50 dollars, remains an open question.

Source GoldSilverWorlds

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