Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Gold Price Trend Forcast to End September 2019 - Video - 25th June 19
Today’s Pets.com and NINJA Loan Economy - 25th June 19
Testing the Fed’s Narrative with the Fed’s Data: QT Edition - 25th June 19
What "Pro Traders" use to Find Profitable Trades - eBook - 25th June 19
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19
S&P 500 Stuck at 2,900, Still No Clear Direction - 17th June 19
Is Boris set to be the next Conservation leader? - 17th June 19
Clock’s Ticking on Your Chance to Profit from the Yield Curve Inversion - 17th June 19
Stock Market Rally Faltering? - 17th June 19
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

The U.S. Dollar’s Crucial Role in the Commodity Cycle

Commodities / US Dollar Nov 12, 2014 - 03:45 PM GMT

By: Harry_Dent

Commodities

The U.S. dollar is falling and it’ll ultimately crash and go down to near zero. Not true… that’s what the gold bugs keep harping on but it’s not true.

This misinformation is very representative of what’s going on in the global economy and it’s almost as bad as the liberal economists and analysts who believe we should just print as much money as necessary to keep the economy growing.

Let’s just start with the truth.


The U.S. dollar did fall dramatically from 1985 into early 2008. And it fell by a staggering 58%.

That’s a major devaluation for a reserve currency that’s usually valued higher than normal due to the fact that dollars are bought at a higher pace because they’re used for global transactions.

What most people don’t realize is that the U.S. did lead the debt bubble from 1983 to 2008.

The Recipe for Devaluation

There were several factors that caused that sharp devaluation. Total debt in the U.S. grew at 2.54 times its GDP for a span of 25 years and the country experienced near constant trade deficits since 1970. In an effort to compensate these, the largest economy in the world circulated more dollars overseas in foreign exchange reserves.

We flooded our economy and the world with dollars and that is what caused that devaluation of 58% despite the fact that the U.S. was experiencing the greatest boom in the world’s history.

What’s happening now is the beginning of a great deleveraging of the debt and financial asset bubble — the greatest in modern history.

Over the next several years, more dollars will be destroyed than any other currency and that will rebalance the great devaluation of 1985 to 2007. The dollar will continue to go up. Not forever… but at least over the next few years when this deleveraging is likely to be at its worst.

The chart below shows the U.S. dollar index from 2008 to present against the six major currencies of the world.

Facts About the Dollar

So let me ask you this: Has the dollar been crashing? No, it’s been trending up since the last great recession started in early 2008. And it continues to trend up even in this new bubble despite the fact that we’ve printed more and more dollars up until October of 2014.

Why? The European Central Bank (ECB) printed more than we did into early 2012 due to an even greater crisis that has persisted longer for them, and they have started printing again to buy sovereign bonds. In early 2013, Japan went off the reservation printing at two to three times its past rate… outstripping the U.S. And on October 31, they announced an even greater increase of 15% to 20%.

The reason the dollar has appreciated more recently has to do with greater money printing from other governments while we finally tapered for the first time over the last year.

One of the most important insights is that the U.S. dollar has only risen since the great crisis — it’s not falling or crashing. It spiked 27% in the worst of the last great financial crisis of late 2008 when gold crashed 33% and silver 50%. It was the safe haven, not gold and silver.

But now even in the strongest period of the money-printing led recovery, gold has fallen 40% from its peak in 2011 and silver 67%.

Why? All of this money printing has still seen inflation flat to falling in most developed countries and back near deflation levels in Europe. Even Japan’s off-the-charts money printing cannot get inflation back up to a measly 2%.

The recent desperate acceleration of Quantitative Easing (QE) for Japan, and now again in Europe, only reflects the even greater debt problem of those countries and their even slower demographic trends. They’re printing more out of weakness and not out of strength.

So here we are… the best house in a bad neighborhood.

At some point we’ll have to print some money again when our forecasted slowdown of 2015 sets in and there are already many signs of it. But if we do begin printing again, the weaker countries will do it as well and even more so.

The most important observation from the dollar index above is that it’s at a key resistance point around 87 to 89, so if it breaks up it could advance to 104 and ultimately higher. This could possibly happen by late 2016 or early 2017 more or less before trends work against it again.

But the dollar is currently overbought and could correct for days or maybe longer, before it breaks up again. If it does break back up strongly above 89 it will be a sign that commodity prices are trending even lower and that the global economy is slowing even more and that U.S. exports will slow even more.

But a higher dollar will bring greater value to the 50% of earnings of S&P 500 companies that will be worth more in higher valued dollars. That’s the wild card at first.

All things considered, a higher dollar will be a sign that the global slowdown is accelerating and that the great deflation is coming.

So have more in U.S. dollars and safe government bonds… not stocks and commodities. The signal will be if the U.S. dollar breaks much above 89 in the days or weeks ahead.

Harry

http://economyandmarkets.com

Follow me on Twitter @HarryDentjr

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.

Copyright © 2014 Harry Dent- All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules