January 8, 2020 - (Gold Market Wire) - In case you missed it in the financial 'commentariat'; the US Dollar is finished. Absolutely finished! So, naturally, we have started to see a resurgent Dollar. No surprise there. The crowd always yells the loudest when the opposite is about to happen. As most market participants know, markets hate uncertainty, and the US Dollar has had no shortage of uncertainty surrounding the challenges of the US Electoral process. Trump has now conceded, and so that is a perfect opportunity for the Dollar to rally. Gold is anticipating that rally, and is selling off.

We noted, roughly two weeks ago, that we thought that 1.22 (Euro/USD) would mark the start of a Dollar retracement. In fact, the market went to 1.235, head faking another breakout, and another leg up. Now we are getting the reverse. This is our new normal in the markets - volatility and chaos, and one is inclined to simply buy options, trade the gamma, and watch the mayhem unfold. In the long run, that, as well as agricultural commodities, will probably be the big play over the next 2-4 years.

But Gold still has a strong role in the world of monetary mayhem, and so we still see a role for it as the ultimate form of chaos insurance and as atrading opportunity. It finished 2020 about 24% up from where it started, so it is a solid performer. Can Gold survive a Dollar resurgence? Yes, we believe it can.

While its important to acknowledge that Gold is the fabled "inverse monetary proxy" of the US Dollar, mid-2018 to early 2020 saw appreciable gains for Gold in a rising dollar environment.

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The real paradigm shift will be when the Dollar and Gold move up together. We have had episodes of such moves in the past, and we will have them again, probably on a more sustained basis. We still do not believe the Dollar is "finished". That is a mantra that has been chanted since 1999 in Gold circles, and it has not happened. It will happen some day, yes. But it is years away basis today.

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In the immediate picture, length is under pressure, no doubt. We are bouncing off of our preferred indicator, the 50-day Moving Average (performing well again), so those with too much length on should start to cut back. Painful? Yes. But strategically necessary. Managing length through a market fall is important to avoiding disasters, so lightening up is the order of the day. Closing out everything is not yet the course of action. Gold is still over-reacting, as is its nature, and that should give us a bounce.

If nothing else, one should take-away a primary lesson from episodes like today, namely, that the Gold market is full of highly nervous people who run at the first sign of a draw back and then watch as the market runs away from them. Many of them are people who have bought near the top. That is why leverage should always be infinitesimally small or non-existant.

Gold is not "finished" in any manner, and is nowhere near a position of losing its medium and long term bullish posture. The chaos gripping the world is going nowhere, anytime soon. And that will keep Gold in an aggressive posture.