Anatomy Of Gold And Dow Index For Impending Financial Disruption 2019

Tuesday, June 4, 2019

gold analysis

Dissecting Financial Anatomy

In our earlier article, we discussed the big financial disruption is coming to us this year and will last to 2021. No doubt President Trump is viewed as a financial disrupter since 2016. His recent trade wars with China and Mexico have caused big changes in the financial markets.

In this complementary article, we will treat the financial market as an anatomy with critical parts and how they move and affect one another. We select 4 critical elements: Dow, Gold, US Dollar and Volatility. These are analogous to the heart, brain, kidney and liver of a physical body. Our key examination is: how the 4 financial elements interact and move in future direction.

Relation of 4 Key Anatomical Parts

Our selected 4 critical elements represent the financial body as a whole. For example, the crude oil price ($WTIC) is highly correlated with gold price to a level of 60%. The normal bond fund price is also correlated with Dow index to a level of 70%. Here we examine their relative movements and direction in near future.

Chart 1 – Schematic Diagram of 4 Key Elements

The above diagram showed:

  • Strong and weak correlations among the 4 elements.

  • Any deviations from the chart will be interesting to watch. They may portend the end of the financial system as we know.

Summary of Earlier Cycle Analysis

Chart 2 – Moving Parts with Potential End Values in 2020

  • The potential 2020 end values were discussed and analyzed in our earlier article.

  • The movements whether any 2 elements are in sync or in opposite direction are important. We need to observe the exceptions to the historical rule.

Dissecting Moving Parts in Detail

The following three charts showed the detail of their correlations. Some displayed strong correlations and others weak correlations.

Chart 3 – Strong Correlation: Dow with US Dollar, but Negative with Volatility

Chart 4 – Strong Correlation: Gold Negative with US Dollar & Dow

Chart 5 – Weak Correlation: Gold with Volatility, USD with Volatility

China’s Reaction to Financial Disruption

Chart 6 – China’s Nuclear Option with Its Dollar Reserves

The above chart showed that China with its huge US Dollar reserves (~ 3 trillions) in holdings of treasury bonds can potentially cause further disrupt the current fragile financial system. We believe China will not divest US Dollar holdings at once. Nevertheless they are already divesting slowly into gold.

Summary

Our anatomical analysis showed that Gold price will inevitably rise up quickly, due to divestment of US assets by China and other countries. From a technical analysis perspective, we need to monitor the ratio CEF/$Gold or equivalently the Silver to Gold price ratio. Once the ratio accelerates upward, the financial disruption will go to high gear. We are not qualified to advise the investors or the traders.

Afterthoughts

There are 4 famous horsemen mentioned at the last book of the Bible. The 4 horsemen of Revelation represented the coming judgment and human misbehavior. In a sense, the 4 key elements discussed here will bring about a new financial system in which a nation cannot print currency out of thin air and not in alignment of its growth.

Lord God All-Powerful, there is no one like you. You are strong, Lord, and always faithful. You rule the stormy sea” Psalm 89:8-9

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F.T. Dao is a private investor and recently left the corporate world for technical analysis of stock markets.  He holds a PhD degree in physics and has done technical analysis of the market on the side for many years.  He welcomes constructive discussion and can be reached at:  ftdao245@gmail.com  ,ftdao245@comcast.net