news.goldseek.com / By Michael J. Kosares / Wednesday, 23 November 2016
Most of gold’s downside is geared not to the financial decisions of millions of investors around the globe, as the mainstream media would have you believe, but rather to linear computer algorithms geared to the dollar index. The trading part of the software has been told to automatically place trades at certain correlated price levels and that is why we get these waterfall drops. The rocket launch trajectories to the upside come when the trading function is told to buy and cover the previous shorts.
In the chart above, we are showing the percentage change in the price of gold over the past year against the percentage change in the dollar index. Our purpose is to provide a little perspective as to what is really going on in the gold market and to belay the interpretation that something has gone fundamentally wrong with gold.
Algos cannot peer around the corner. There is no rational for their function other than what its programmers have fed into the governing equation. Thus, if the algo says sell gold when the dollar rises, it sells gold when the dollar rises. It doesn’t stop to think that the dollar is rising in a milieu of crashing currencies globally and the potential consequences. It doesn’t stop to consider that it will take months for the Trump administration to get a tangible, workable economic program through the Congress, and then months more for the program to have an effect on the overall economy. Such critical thinking is left to the rest of us who are not tethered to computer trading programs.