Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
Gold Surges on Stock Selloff - 18th Jan 19
Crude Oil Price Will Find Strong Resistance Between $52~55 - 18th Jan 19
Stock Market’s Medium Term is No Longer Bullish. It is Now Mixed - 18th Jan 19
SPX and Gold; Pivotal Points at Hand - 18th Jan 19
Fable Media Launches New GoWin Online Casino Affiliate Site in UK - 18th Jan 19
The End of Apple! - 18th Jan 19
Debt, Division, Dysfunction, and the March to National Bankruptcy - 18th Jan 19
Creating the Best Office Space - 18th Jan 19
S&P 500 at Resistance Level, Downward Correction Ahead? - 17th Jan 19
Mauldin: My 2019 Economic Outlook - 17th Jan 19
Macro Could Weaken After US Government Shutdown. What This Means for Stocks - 17th Jan 19
US Stock Market Indexes Reaches Fibonacci Target Zone – Where to Next? - 17th Jan 19
How 2018 Was For The UK Casino Industry - 17th Jan 19
Gold Price – US$700 Or US$7000? - 16th Jan 19
Commodities Are the Right Story for 2019 - 16th Jan 19
Bitcoin Price Wavers - 15th Jan 19
History Shows That “Disruptor Stocks” Will Make You the Most Money in a Bear Market - 15th Jan 19
What Will the Stock Market Do Around Earnings Season - 15th Jan 19
2018-2019 Pop Goes The Debt Bubble - 15th Jan 19
Are Global Stock Markets About To Rally 10 Percent? - 15th Jan 19
Here's something to make you money in 2019 - 15th Jan 19
Theresa May to Lose by Over 200 Votes as Remain MP's Plot Subverting Brexit - 15th Jan 19
Europe is Burning - 14th Jan 19
S&P 500 Bounces Off 2,600, Downward Reversal? - 14th Jan 19
Gold A Rally or a Bull Market? - 14th Jan 19
Gold Stocks, Dollar and Oil Cycle Moves to Profit from in 2019 - 14th Jan 19
How To Profit From The Death Of Las Vegas - 14th Jan 19
Real Reason for Land Rover Crisis is Poor Quality of Build - 14th Jan 19
Stock Market Looking Toppy! - 13th Jan 19
Liquidity, Money Supply, and Insolvency - 13th Jan 19
Top Ten Trends Lead to Gold Price - 13th Jan 19
Silver: A Long Term Perspective - 13th Jan 19
Trump's Impeachment? Watch the Stock Market - 12th Jan 19
Big Silver Move Foreshadowed as Industrial Panic Looms - 12th Jan 19
Gold GDXJ Upside Bests GDX - 12th Jan 19
Devastating Investment Losses Are Coming: What Is Your Advisor Doing About It? - 12th Jan 19
Things to do Before Choosing the Right Credit Card - 12th Jan 19
Japanese Yen Outlook In 2019 - 11th Jan 19
Yield curve suggests that US Recession is near: Trading Setups - 11th Jan 19
How Unrealistic Return Assumptions Are Ruining Your Stocks Portfolio - 10th Jan 19
What’s Next for the US Dollar, Gold, Stocks & Bonds? - 10th Jan 19
America's New Africa Strategy - 10th Jan 19
Gold Mine Production by Country - 10th Jan 19
Gold, Stocks and the Flattening Yield Curve - 10th Jan 19
Silver Price Trend Forecast Target for 2019 - 10th Jan 19

Market Oracle FREE Newsletter

Bitcoin Analysis and Trend Forecast 2019

Gold Takes Center-stage in Dollar Scare

Commodities / Gold and Silver 2018 Feb 06, 2018 - 05:37 AM GMT

By: Michael_J_Kosares

Commodities

Trump-Mnuchin qualifiers in dollar statements tell all

“While it’s [a strong dollar] described as a desirable and intended thing, it might not be a choice. The size of dollar holdings of reserves (in dollar-denominated debt) and the dollar’s role as the dominant world currency are anachronisms and large relative to what one would want to hold to be balanced, so rebalancings should be expected over time, especially when U.S. dollar bonds look unattractive and trade tensions with dollar creditors intensify.” – Ray Dalio, Bridgewater Securities

Much is made of the direct inverse correlation between gold and the dollar, but acknowledging that relationship does not really get us anywhere. The bigger question is whether or not the dollar will continue to track lower as it has over the past 18 months or will it suddenly reverse course and head higher.


In the end, the international FOREX markets will determine the dollar’s value against other currencies. That journey, though, will be influenced by other players on the stage, i.e., central banks and governments, including the U.S. government and the Federal Reserve, whose main interest will be the value of their currency, especially against the currencies of their largest trading partners.

It is there, on the ultimate battleground of the political economy, that the plots and subplots can become as twisted and complicated as the intricacies of a John LeCarre novel. Note, for example, the couching of terms in the following two statements delivered during the Davos conference late last month:

“I absolutely support a strong dollar over the long term.” – Stephen Mnuchin, U.S. Secretary of the Treasury

“The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar.” – Donald Trump, President of the United States

Those qualifiers, over the long term and ultimately, tell all and go to the heart of what the administration intends. What happens to the value of the dollar between now and ultimately? What happens before the long-term policy kicks in? In its unambiguous ambiguity the Trump administration has signaled no intention of disrupting any market generated dollar weakness. It will stand aside. Beyond that, time will tell to what degree it will project the economic power of the United States if it becomes necessary to keep the exchange rate down.

For the markets, there was no ambiguity in the statements at all. The intent of the administration was crystal clear. Its dollar policy would be neither “strong” nor “weak.” Instead it would be strategically benign. In the immediate aftermath of the Davos statements, the dollar cratered, gold jumped and the bond market went into a tail spin. For traders and speculators, the way was clear. As Marc Chandler of Brown Brothers Harriman told Financial Times: “While Mnuchin was only stating the obvious, Treasury secretaries since Robert Rubin have never really deviated from the strong dollar mantra. The mantra has never really meant much, but to deviate from it suggests that U.S. policy makers desire a weaker dollar.”


 I hope Gold Takes Center-Stage in Dollar Scare strikes a chord with you. If it does, you would probably appreciate our monthly client letter which offers in-depth news and opinion on the gold market with the interests of the typical gold owner always kept in mind.  To access the rest of the February edition and receive e-mail notification of future issues, we invite you to register at this link.  We make the newsletter available to our current and prospective clientele as a free service without obligation. We welcome your participation. MK

So where do we go from here?

As the first two charts below amply illustrate, the dollar has been in long-term secular decline since the start of the fiat money era in 1971. Gold over the same period has been in a long-term up-trend. So the short answer to the headline question is that gold likely will be in a very strong position for the immediate future – a prognosis hinted by its performance over the past two years of dollar declines (first chart below).

Historically, though, the dollar declines have not been against other currencies only, but against goods and services as well (second chart below). In short, if the U.S government and central bank have favored a strong dollar policy, their efforts have pretty much amounted to a prolonged failure. From time to time, it needs to be noted, the dollar’s secular down trend has been punctuated with periods of strength that then ultimately revert to the primary trend. We just recently completed one of those periods of strength in 2016 and seemingly have reverted to another period of weakness.

As you can see in all three charts, gold has served its owners well as a safe haven and asset of last resort. In fact, its history as a counter-measure to dollar depreciation has formed the basic rationale for gold ownership over nearly the past 50 years.

Now, with the dollar coming off its 2016 peak, market analysts are suddenly talking up the prospects for another episode of major dollar weakness against other currencies. However, unlike the last bout of dollar weakness in the early 2000s when disinflation bordering on deflation dominated the economy, analysts this time around are predicting the simultaneous return of price inflation.

The prospect of the two together – a crumbling dollar and inflation – spooked markets to the point that the Dow Jones Industrial Average gave up over 1000 points in a single week (1/29) and 665 points in a single day (2/2). This ramped-up scenario has all the earmarkings of a return to the stagflationary 1970s – something former Fed chairman Alan Greenspan has been predicting for some time now. In fact, two days before the February 2nd stock market reversal, he was on Bloomberg television warning of bubbles in both the stock and bond markets. Our third chart provides a clue as to how gold might perform in a 1970s redux.

(In the next section of this month’s client letter, we delve into what appears to be the first signs of inflation’s re-emergence: rising commodity prices.)

By Michael J. Kosares
Michael J. Kosares , founder and president
USAGOLD - Centennial Precious Metals, Denver

Michael J. Kosares is the founder of USAGOLD and the author of "The ABCs of Gold Investing - How To Protect and Build Your Wealth With Gold." He has over forty years experience in the physical gold business.  He is also the editor of Review & Outlook, the firm's newsletter which is offered free of charge and specializes in issues and opinion of importance to owners of gold coins and bullion.  If you would like to register for an e-mail alert when the next issue is published, please visit this link

Disclaimer: Opinions expressed in commentary e do not constitute an offer to buy or sell, or the solicitation of an offer to buy or sell any precious metals product, nor should they be viewed in any way as investment advice or advice to buy, sell or hold. Centennial Precious Metals, Inc. recommends the purchase of physical precious metals for asset preservation purposes, not speculation. Utilization of these opinions for speculative purposes is neither suggested nor advised. Commentary is strictly for educational purposes, and as such USAGOLD - Centennial Precious Metals does not warrant or guarantee the accuracy, timeliness or completeness of the information found here.

Michael J. Kosares Archive

© 2005-2018 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