So, getting exhausted?

Wednesday's dollar move has finally produced what I've been expecting since quite some time, - a spike on the downside. In my opinion it is one, indicating the trend is exhausting. The kind of spike which doesn't change anything technically and is seen barely as a beep  on the long term charts, but at the moment is perceived by the trading public as a catastrophe: "we gonna crash!"

By the way, the 2 high yielding currencies I'm watching closely (kiwi  and aussie) were far enough from confirming this exploit. Just may be they know something more about Chinese reflation and just may be that is more important than no more significant statements from the FED about long lasting low interest rates? Indeed, are we in the environment where the interest rates or the capital preservation matter more? I'm pretty sure in coming weeks we'll start to see the answer.

Dollar's turning point?

So hated dollar started to show some strength in recent hours. Already, EUR/USD failed to put in new highs  while USD index established new lows. Indeed, index was pushed by the strength of other currencies, among which I would cite Australian dollar, the biggest beneficiary of the reflation process.

Is this weakness real? I think, in any case, AUD/USD must be watched seriously as an indicator par excellence of the Chinese part of reflation. And let's not forget, that at 0.94, AUD /USD is just within 4 cents  from the '08 high, - about a perfect shorting opportunity for someone who does believe in the near end of this fiesta.

Is Gold the best hedge against the inflation?

My positive opinion on precious metals has materialized in the new historical highs for gold and cyclical for silver. The public attention has been largely attracted by the gold installing above 1000 dollars mark. As for me, I'm happy with just new cyclical highs in silver. Really, is the gold the best hedger against the inflation (or should we say reflation) where we are supposed to be ?
Looking at gold to silver ratio we see that gold is a strong outperformer in a deflationary environment, as the one we have experienced last fall. Since the reflation policy has started to work, the silver has started to outperform gold.

We can even try to judge the "quality" of the reflation policy regarding the eurozone on the chart with gold priced in euros: the recent top in dollar is far from confirmation.

Or to find  which country is the biggest bénéficier of the policy of global reflation, looking at gold priced in Australian dollars:

Even Dow  has managed to do better since the reflation attempt has begun:

So, my conclusion is that gold as well as cash is the best investment during the periods of credit stress which we have seen during second half of 2008 and 1Q of 2009.  But for the period of  "reflation" gold under performs other assets (except cash)  and will even further under perform silver should we enter a period of higher inflation.