T2W Trading Community

Fundamental Lesson 1: There is a relationship between the US Dollar and Gold

Here is an enlarged view of the late 1980’s and early 1990’s so you can get a better feel of the importance of this relationship or imbalance between Gold and the U.S. Dollar. This index can be followed or maintained weekly. You may also keep abreast of it, as I do, with the software from Genesis Data Services (gfds.com).

Please note this is not a day-trading or short term swing indicator. It's record is that of calling moves which last for 6 months or longer. What I have developed, crude as it might be, is a way of discerning when Gold is overvalued against the U.S. Dollar.  You may also see that most major rallies in this metal, though not all begin with this valuation index in a low level, suggesting owning Gold is better than owning Dollars.

Does Gold have a seasonal pattern?

We usually think of commodities like Corn, Cattle and Wheat or perhaps Cocoa and Coffee as having seasonal influences due to planting, harvesting or breeding cycles. While that is true, it is equally true that the metal markets have shown a specific pattern to rally and decline, usually, but not always, at the same general time periods each year.

This is not a new idea. In my 1973 book, the first of its’ kind on identifying seasonal patterns in commodities (“How Seasonal Factors Influence Commodity Prices”) I pointed out that Gold had a seasonal influence to rally around July of each year with a top in December. As you look at the long term price of Gold below on a monthly chart, keep in mind that I wrote about the seasonal influence over 30 years ago.

Underneath price you will see that the seasonal pattern (which has been exactly as I identified in 1973) rallies in the middle of the year and declines at the end.  That’s usually, not always, but usually what Gold does.