Gold got a little momentum on Friday and while we are bouncing at present, it is clearly an inverse dollar move and nothing more as we once again broke below 95 on the index.
Question: How can you be so bullish on the dollar Doug? It looks like it is breaking down?
Answer: If you look at the longer term chart we are actually in a bull market for the dollar since 2011. We are simply consolidating at present, not breaking down. With the perception that the Fed won’t raise rates, it has been viewed as dollar negative, gold and stock market positive.
Question: But why are you dollar positive with all the U.S. negative data you keep pointing out to your readers?
Answer: Yes, it doesn’t make sense on its face. I grant you that. The data I point out is viewed by the Fed too and they saw it and said we can’t raise rates yet as the economy is not looking that great. But the dollar is simply a representation of other currencies more than anything else. I am making the case that we will see the Euro hit hard in the coming months because Germany, the engine for Europe, is in some deep trouble with their auto industry. I have mentioned this in the past but here is the headline from today’s The Guardian; Germany readies itself for more woe as scandal and slowdown hit economy.
Analysts say the sharp decline in exports – they fell by more than 5% in August – could be the first solid evidence that the downturn in emerging markets has started to hit home in Europe. Factory orders and industrial output also look weak.
Frankfurt-based Deutsche Bank, which is being reshaped by its new boss, John Cryan, announced its largest-ever loss, more than €6bn, in the third quarter.
Germany is expecting to accept up to 800,000 immigrants, as its contribution to the biggest refugee crisis in living memory. Economists at Goldman Sachs estimate that that could require €9bn of extra public spending, adding up to 3% to Germany’s GDP.
Do you remember Greece? Did their problems simply go away because CNBC stopped talking about them? If Greece and their economic issues was all the talk causing the Euro to fall hard, what will Germany’s weakness signal for the Euro? If you look at that chart of the Debt to GDP ratios of all of Europe being much worse than that of the U.S., it is “perception” of the U.S. dollar being a better or safer place to park funds if you are an investor in Europe and for this reason I see the dollar moving up to 120 in the months to come. This will put tremendous pressure on gold priced in dollars. I don’t know of anyone who is analyzing the gold market this way, but it is what I see and if you read my negative Euro and Yen comments that were dollar bullish from years past, my track record on this is pretty good.
This doesn’t mean we don’t continue higher for a bit longer in gold, but around the corner watch the dollar start to move higher and get back over 100 again and gold to fall under $1,100 and head below my target of under $1,000.
Doug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
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