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We all better hope I'm
wrong on this one, but I think the CRB just put in its three year cycle low
in October. I'm also afraid that Bernanke has done irreparable damage to the
dollar. If I'm right about both of those assumptions then we are on the brink
of a historic inflationary period.
I've marked the major three year cycle bottoms in
both the CRB index and the dollar index on the chart below with blue arrows.
(Actually the CRB cycle tends to run about two and half years on average).
The dollar is now a great risk of forming a left
translated three year cycle. A break below the October 27 intraday low would
initiate a pattern of lower lows and lower highs of an intermediate degree.
When the intermediate cycles start to roll over that is usually a sign that a
major cycle has topped. If the dollar's three year cycle has topped after
only five months we will be at great risk of a severe currency crisis in the
fall of 2014 when the next three year cycle low is due. Even more concerning
is if the CRB cycle has bottomed. If it has then commodities are poised for a
huge surge higher during the next two years as the dollar deteriorates.
The next couple of weeks are going to be critical
for the dollar. Sometime in the next two weeks the dollar is going to drop
down into its next daily cycle bottom. On average that cycle lasts about 20
to 25 days. Monday will be the 12th day of the cycle. The reversal last
Thursday has the potential to mark the daily cycle top. If that top holds
then the dollar is at great risk of moving below the October 27 intraday
bottom sometime in the next two weeks as it moves down into its next daily
cycle low.
The dollar must hold above the October 27 low.
Failure to do so would indicate that the cancer has now infected the currency
markets, most specifically the US dollar. A penetration of the October 27 low
would indicate that the current intermediate cycle topped in only two weeks.
That should potentially lead to another 15-20 weeks of generally lower prices
on the dollar index with the next intermediate degree bottom due sometime in
early to mid March.
If that scenario plays out we are almost certainly
going to see the CRB break it’s down trend line confirming a major
three year cycle bottom has been formed.
The extremely mild nature of the decline so far is a
serious warning sign that QE1 and QE2 are going to eventually trigger massive
commodity inflation.
At this point all we can do is hope that the three
year cycle in the CRB will stretch slightly long and bottom early next year.
If it fails to do so, and the major three year cycle low did occur in
October, then we have some serious inflation heading our way in the next two
years.
More importantly to precious metal investors, if the
dollar’s three year cycle has already topped then there is a very
strong possibility that the next two years, as the dollar collapses down into
its 2014 bottom, will drive the bubble phase in the gold bull market.
Toby Connor
Gold Scents
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