This isn’t 2008. Those that are expecting fireworks for the U.S. dollar if this bear market continues are in for a rude awakening. The setup for the dollar is completely opposite to what happened leading into it’s mega run in 2008. Let me explain.
The dollar was approaching a 3 year bear market heading into late 2008 as the stock market was beginning to crash. And the bears were out in full force proclaiming the death of the dollar right at the bottom. Being a dollar bull at that time in 2008 was totally contrarian after a 6 year overall bear market in the dollar, but it was the exactly right position to take.
This time the dollar has been going up for 3+ years, and is actually late in a cyclical bull market and ready for a top. Sentiment is dollar bullish now after the dollar has not made a major new low for 6 years since 2008. Discussion of King Dollar being back has been all over the Internet recently when it made a big surge higher. In reality it’s more likely the dollar is overdue for a major top and could be headed for a new bear market shortly.
Some might say that the big surge higher in the dollar recently is proof that the dollar is ready for a new bull market. The problem with that narrative though is the fact that markets tend to make false moves before they make big trend changes, as they fool people right at the end of their move. Two examples of this were what happened with gold and oil in 2007 into 2008 as the stock market transitioned into a bear market.
Gold and oil actually bucked the trend of the stock market and went higher into 2008 as stocks had already topped. And they didn’t just make minor moves higher, they made big moves higher with oil making a crazy parabolic spike higher right before stocks got crushed. So there is precedent for extreme false moves right before bear markets begin and I think it’s quite possible what we just witnessed in the dollar was another example of this.
The story for gold right now is very similar to what happened with the dollar in 2008. Everyone is bearish at the bottom after a 3+ year cyclical bear market, and nobody expects a major move higher. Market participants are actually positioned for the exact opposite thing to occur in a big way. Small speculators in the futures markets were recently the most net short they’ve been of gold in the last 13 years! Gold is actually overdue to start a bull market and take everyone by surprise just like the dollar did in 2008.