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The Dollar Bull Overstays Its Welcome

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Posted by Roland Watson

on Thursday, 22 December 2016 08:14

Back in March 2008, as the Credit Crunch was biting, the US Dollar, as measured by the US Dollar Index (USDX), was bottoming after a drop of over six years fuelled by the War on Terror. Silver had previous topped out at about $21 and was later to visit $50 as the dollar faced the abyss again just above the 70 level. To date, that level has been the all time low for the USDX.

USD INDEX

Looking at the 45 year chart for the USDX, it is clear the dollar has been on a downward trajectory interspersed with some rallies since 1985. As of 2008, the dollar has been in an 8 year rally. It is no coincidence that gold and silver have struggled during this time and precious metal investors will be wondering when the dollar will resume its 31 year bear?

While writing for subscribers on the US Dollar, another look at the USDX chart suggested that the dollar bull was beginning to outstay its welcome. Lines have been drawn between each high and low to highlight each dollar bull and bear.

 http://goldseek.com/news/2016/12-21rw/2.jpg 

Let us tabulate these ups and downs below. As you can see, the USDX has experienced three bulls and three bears since 1971. What is interesting are the similarities in durations ranging from six year and four months to eight years and ten months. The average is 2798 days or seven years and eight months.

BEGIN

END

DURATION

MOVE

4th Jan 1971

31st Oct 1978

7Y 9M 28D (2858d)

-32%

31st Oct 1978

28th Feb 1985

6Y 4M 1D (2313d)

+100%

28th Feb 1985

30th Sep 1992

7Y 7M 3D (2772d)

-47%

30th Sep 1992

31st Jul 2001

8Y 10M 2D (3227d)

+56%

31st Jul 2001

31st Mar 2008

6Y 8M 1D (2436d)

-42%

31st Mar 2008

16th Dec 2016

8Y 8M 17D (3183d)

+44%

As this current dollar bull stands, it is now been on the go for eight years and eight months, which is one year above the average and two months off the longest ever bull. In other words, I would say this dollar bull is getting long in the tooth and will soon be replaced by a dollar bear which will run for an average of seven years and eight months.

What are silver and gold going to be doing during this approaching dollar bear? I would say the odds favour them heading strongly up within that time period. 

What are the fundamentals of this cyclical prediction? I don’t know and I have no idea why the dollar should flit in and out of these 6-8 year cycles. But as for the next dollar bear, my bet is that a Trump administration is going to indulge in a dollar depreciation program that is not based on welfare or warfare, but rather heavy infrastructure spending which I shall call wall-fare in honour of that long structure he plans for the Mexican border.

...related: US Dollar & Gold

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