“All the reasons being advanced for gold’s rise this week were fully in place at the November 8th election. Perhaps the subsequent slump will eventually be seen as an aberration.” – John Brimelow from JB’s Gold Jottings Report – Contact link
The dollar went nearly parabolic after the election, along with the Dow and the S&P 500. The move was not supported by fundamental factors in any respect. Rather, it was momentum-chasing game fueled by the empty promise of “hope.” While “hope” is a valid emotion for those who believe in life after death, “hope” in the absence of valid fundamental factors can quickly turn into fear – the fear of losing money.
Bank of America released a survey of Wall Street “professionals” in which the respondents stated that the “long U.S. dollar” trade is by far the most overcrowded trade. The dollar index has already retreated about 3.5% since the first of the year. If the index breaks below 100, the current exodus from the long dollar trade could quickly turn into a stamped toward the exit.
On the flip-side of this is gold, which has rallied nearly 6% since late December, and silver, which has rallied 7.8% since its end of December low. The fundamental factors driving gold vs. the dollar would be the continued surge in U.S. Treasury debt issuance; which has doubled in size over the last eight years, contracting economic activity notwithstanding the plethora of fake economic reports; a rapidly expanding Government spending deficit; and a rapidly expanding trade deficit.
The quick-fix band-aid for Trump will be to implement a policy that attempts to push the dollar lower. He tweeted as much earlier today. The spike-up in gold is being attributed to that tweet.
But not so fast, fake news adherents. 50% of gold’s move occurred on Monday, while the U.S. was closed in observance of MLK’s birthday and well before the Trump tweet. Mining stocks in Canada moved up sharply yesterday. This tells us that there are other factors behind the move in gold besides the expectation that the dollar is going to sell-off.
One of the Fed Governors, Lael Brainard, gave a speech today in which she somewhat back-pedaled from the Fed threat of four rate hikes during 2017. We knew this was coming. Gold will begin to anticipate an “easing” of the Fed’s stance on monetary policy, likely to occur at the next meeting, especially in light of the December’s retail sales / consumer spending disaster.
As the dollar falls below the 100 level on the dollar index, hedge fund algos will shift from buying dollars and selling paper gold to dumping dollars and piling back into paper gold. But that’s just for starters. The Modi cash removal initiative has failed to put the brakes on Indian gold imports and China and Russia continue to inhale vast quantities of physical gold. This will help infuse “substance” into the hedge fund-driven paper gold/silver trade.
On today’s episode of the Shadow of Truth, we chat about the factors that will drive gold, silver and the mining stocks higher this year, possibly in a move that will be bigger and longer than the move in 2016: