I did an interview with Jim Goddard about the action in the DOW and the stock market. There are some stocks not acting right and five I think are in trouble on their technical analysis charts, but a big sector is now turning up that had been dormant for months that is helping to push the stock market higher:
I also talked about how weakness in foreign markets and foreign currencies is helping the stock market too in this interview, by making people overseas put money into the US markets as a “safe haven.”
I don’t think that is going to last forever, but something fascinating is happening.
Look at this chart of the Chinese yuan.
On the very bottom of this chart I have the price of gold and the US dollar index above it.
The dollar is the world’s reserve currency and gold has a strong negative correlation against the US dollar, meaning that when the dollar goes up gold tends to go down.
In June when Turkey blew up and the Chinese markets started to fall the US dollar went up and gold went down as that happened.
But since the Trump election gold has been moving up and down with the Chinese yuan with a very strong correlation.
The correlation indicator right below the chart of the yuan shows that this correlation of the 200-day average price of the yuan and gold is now at 0.91. That’s a really strong correlation and never has happened before in the history of the yuan.
In other words the yuan is trading as if it were gold.
What does this mean?
Well, right now we are seeing weakness in global markets and China and the yuan and strength in the dollar as a result.
One day that is going to change.
And when that day comes the yuan and gold will go up together.
If such a trend were to continue for years the yuan would end up displacing the US dollar as the world’s reserve currency.
This relationship between the yuan and gold is an invisible trend no one is talking about right now, but you can see it right here in this chart. Of course, we’re in a bear cycle right now for the yuan. But in a few years it will be in a bull market cycle and things will begin to change.
This was a theme of an interesting article I read this week at Axios:
Here is another thought for you – Trump’s economic program is helping the stock market go up and the economy grow. Its essentials are tax cuts and a big boost in defense spending, both of which when they combine into one are now busting the government budget deficit.
It’s going to be over a trillion next year.
But as long as the US dollar is rising or at least holds up here that deficit doesn’t matter.
Going into 2017 the US dollar started to go down as some people worried about these future deficits.
The trade war launched on China though this June helped spur the current dollar rally.
One way to look at the Trump trade wars is that they are a way to push the rest of the world down and the dollar up so that the US now busted budget deficits can continue longer than they would otherwise.
Of course, that means bigger imbalances when they start to matter and a higher possibility that the US dollar will end up being displaced as the world’s global currency when the next US bear market cycles plays out. So right now the US stock market is going up and it’s fun for people, but the whole situation is a big catch-22.