Most of us gold bugs watch the price periodically to see where the paper derivative GLD stands. We know that this derivative instrument really has no bearing on the fundamental price whatsoever. Even so, we stare at the tickers on websites, television, and at local bullion dealers for some sort of inspiration. Inspiration comes in the form of a few dollar ticks higher or some form of class action lawsuit against the “metal rigging militia.” The latter seems to be happening more frequently because more people are becoming aware of the central banks’ scheme to make us all poor. A trend that will help gold in 2018 is the continued weakness in the U.S. dollar. The dollar decreased by 10% in 2017, while the euro gained about 16%. A strong economy would normally promote a strong currency, but we are not in normal circumstances. Dollar holdings have been falling because the level of debt is not an appealing attribute to other countries. Most of the strength in the dollar was due to central bank intervention and manipulation of the USD/JPY pair. Foreign holders will continue to accumulate the yellow metal for diversification and financial liberation from the dollar empire. A report was recently released that China wouldn’t be buying U.S. Treasuries anymore. Whether it’s true or not, we know that this has been a weak link for the U.S. for years. Logically, if China were actually dropping U.S. Treasuries, the money would be going to other assets. We know China has a large trade surplus, and this would suggest that they would expand on their gold holdings. Is this part of the pressure on the dollar this year?
If the dollar (DXY) falls under 90, the floor will take it down to the middle to the low 80s which be the lowest in 4 years. I suspect that this is likely, as dollars are being dumped for gold and the Fed continues to not be believed. If the market really believed the Fed was going to raise rates 3 times in 2018, would the dollar continue to decline? Gold closed out 2017 above $1,300 for the first time since 2012, which is something to take note of. Earlier this month, gold closed higher for 10 consecutive sessions, something that was also not done since 2012. A strong close above $1,400 would set up a run to $1,500 and new all-time highs. Watching gold futures, the last several weeks seem to suggest that bank intervention in the gold market is creating smaller dips, even while COMEX paper gold has added roughly 56,000 new contracts since December 11th. Not only did gold close up several consecutive days in a row, but commodities closed with their longest winning streak ever. Prudent investors know that owning a percentage of hard assets during a period of runaway central bank intervention is one of the best bets you can make. Commodities are cheaper than at any time in the last 60 years. The signs are accumulating all around us while the dollar continues to weaken, commodities are extremely cheap, and the yield curve is at financial crisis levels. The spread between the 10-year and 30-year Treasury is roughly 26 bps, signaling that a recession may be here by the end of the year. All of these factors coincide with Trump’s infrastructure plan, which is creating more demand pressure on raw materials. Alternative assets in 2018 should be a golden portfolio opportunity.
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Cheers,
Colin
