Tag Archives: dollar index

The Price Of Gold When The Dollar Index Hits 70

There’s been a lot of media/Wall St/blog noise about the relative strength or weakness with the U.S. dollar.  With respect to gold, the daily vicissitudes of the gold price are associated with the daily price variations of the dollar index. This is incorrect analysis.

To be sure, over longer periods of time, there will be a high inverse correlation between the gold price and the dollar index. But prior to the run-up over $1900 in the current period, the last time the gold price was trading above $1900 was in September 2011.  At the time the dollar index was trading in the 70’s.

The investment value of gold – My thesis for devoting the last 20 years to researching, analyzing, trading and investing in gold has been twofold. First and foremost to protect my savings from the ravages of eventual catastrophic policies implemented by the Federal Reserve and the Government. But secondarily, both gold and silver are extraordinarily undervalued relative to the quantity of fiat currency AND fiat currency derived debt circulating globally.  As such, both gold and silver have extraordinary investment value.

The graphic above compares the price path of gold and the USDX over the last 12 months. Without question there’s an inverse correlation – over an extended period of time.  But from mid-March thru June, gold and the dollar traded almost perfectly in tandem.  Since June, gold has risen as much as $400 while the dollar index in the same time is only 300 basis points lower.

In fact, between their respective lows in March and now,  gold has soared 31.7% while the dollar index is largely flat.

This latter occurrence is what I call “the investment value of gold.”  Gold (and silver) functions both as a wealth preservation asset and a wealth enhancement vehicle.  Both metals are singularly unique with these attributes.

Let’s face it. The U.S. technically is insolvent. The only factor preventing collapse, for now, is the willingness of our trade counterparties to continue accepting the dollar for trade settlement. With the continued deterioration in the economic, financial and fiscal condition of the United States and the accompanying escalation in money printing by the Fed, the global acceptance of the dollar will diminish more than it already has over the last 20 years.

At some point the dollar index will quickly revisit the 70 level it tested in 2008.  When that event occurs I expect the gold price to be at least double its current level and silver to be pushing $100 (gold/silver ratio below 40 from its current 80).

Buying physical gold and silver – not GLD or SLV – should be your first priority in seeking shelter from the eventual fate of the dollar.  But mining stocks offer the potential wealth enhancement as well “optionality” upside to the prices of gold and silver. If you would like some ideas for investing in mining stocks, take a look at my  Mining Stock Journal.

Momentum Traders Shift To Gold And Silver

“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:

The Web Of Deception – An UnNatural Price Correction

This empire, unlike any other in the history of the world, has been built primarily through economic manipulation, through cheating, through fraud, through seducing people into our way of life, through the economic hit men. I was very much a part of that – John Perkins, “Confessions of an Economic Hit Man”

Rory and I discuss the significance of the Baltric Dry Index, the raid on the precious metals sector by the Fed/Bullion Banks and the significance of the dollar rally: