17.8.11

Gold, Oil & the Dollar: Correlation Breakdown Is Concerning Says Yamada

Over her multi-decade legendary career, technical analyst Louise Yamada has seen all kinds of markets and probably analyzed more than a million charts. For Macke to refer to her as a "national treasure" speaks volumes about the quality and value of her work. It is also precisely why I take notice when I hear Louise call anything "amazing."

"What's amazing is everybody talks about the correlation between dollar direction and commodities, but the dollar has done absolutely nothing, flat for months, yet gold went up and oil went down, so there was no correlation," says Yamada. This means "the dollar is starting to lose that correlation perhaps because the perception of the dollar as the reserve currency is starting to drift away."

As much as that supports Yamada's belief that the dollar is in structural decline, the weak dollar/weak oil phenomenon could also be an indictment of a weak economy. For further proof of that she points to interest rates which "had seen higher lows in 2010 and 2011 and now those lows are being breached."

For Yamada this suggests we could be looking at a more serious global slowdown than we think. "What's more disconcerting to me now is...evidence at the long end, where interest rates were starting to pick up, is now dissolving and that I think is problematic in the sense that it's telling us that there is more fear and concern out there."

Geez Louise, you're bumming me out. But if she is right, expect crude oil to "stay in a low trading range of $67 to $90" and gold to make its way towards $2000 an ounce.

"Gold is in a structural bull market. It has maintained its 2009 uptrend on every pull back that has taken place and now you've had a rather accelerated advance to $1800," says Yamada.

Perhaps to assuage Macke -who confessed to buying back into gold after selling it in a move only he could describe as having all "the discipline and restraint of Charlie Sheen at the Adult Video Awards"- Yamada says since 2009 we have seen a series of 20% gains followed by consolidation and "would use any weakness to continue to add to positions." She "absolutely loves gold!"

Add it all up and this Friend of Breakout says it encourages her to stay on the sidelines. "It suggests there's confusion, there's not a definitive trend, and if there's not a trend you shouldn't be playing."

Are you in or out of commodities? Let us know in the comment section below or via email: breakoutcrew@yahoo.com

SOURCE: http://finance.yahoo.com/blogs/breakout/gold-oil-dollar-correlation-breakdown-concerning-says-yamada-133101970.html%20?sec=topStories&pos=9&asset=&ccode=

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