RE:RE:Longer term trends more important than daily trends JEN9 wrote: ...
I am a bit concerned about the strenghth of US dollar on gold ..going forward...I think it is underestimated how strong it could be.....also in ST seasonality does not favour gold until close to new year !
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thx for your comments Jen
thats is a big subject to tackle. In brief you are correct, seasonality favours a move in gold closer to year-end. However there are more factors at play when it comes to the USD. A high USD will eventually destroy the vitality and currencies of many EM economies ( in fact its already happening in places like Brazil, Venezuela, Italy, Turkey, South Africa, etc.) It’s not necessarily in the US interest to destroy economies that would otherwise be able to afford to purchase US debt, goods and services. That would hurt US trade deficits if ithe contagion expands to many more countries.
Secondly, countries like Russia and China and secretly others are tired of the US having the worlds reserve currency ( ie the ability to fund ever expanding deficits and military) They are taking steps to transact in non- USD. That has the effect of reducing demand for USD going forward ( and therefor it’s strength)
Finally the most important catalyst for a weakening USD and strengthening gold will be the realization that the US will soon have to curtail further rate hikes and probably reverse course into easing ( perhaps even renewed QE and ZIRP). Why? The next Recession. Which is now overdue. The next Recession will start a much more robust gold rally. Sadly that will be accompanied by/ followed by? much higher rates of inflation in the US - also a catalyst for gold. The fun begins in 2019 IMO. Unlike 2008, there will not be the same kind of exodus from gold as there will be from all other asset categories (in short because gold has been correcting for many years and is now close to its cost of production, and because IMO it will eventually be viewed as a safe haven again)
MM