Gary Savage sees a weakness in the dollar that could benefit gold over the mid term

December 27, 2013

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Gary Savage continues to see a weak US dollar over the next few months. He argues this is a sign that the economy is not a strong as we are lead to believe. As the dollar tests is lower trend line this will help gold and silver and drag down the conventional markets.

    Dec 27, 2013 27:15 AM

    This post found its way back to me by an e-mail and is worth reconsideration:


    How many Disney movies can you think of that open up with an exploration into the nature of money?
    I can only think of one. Not quite as in depth as “Atlas Shrugged” but a curious beginning to a Disney movie. It is as if there was no better way to start the picture.
    Old Yeller was not Travis’ first dog.
    Travis’ favored first dog Bell was bit by a rattler.
    Just after the Civil War Bell was bitten by the head of a rattler “Papa” had separated from its writhing body with a scythe. The favored Bell did not make it.
    Was the name of the felled favored first dog an accident?
    The young America’s hard fought for Liberty was symbolized by a cracked Bell.
    The Civil War had killed the country’s innocence causing it to mourn as Travis mourned his favored dog. Then Old Yeller burst onto to the scene calling for the love of a dog and/or liberty once again.
    It is difficult not to compare Travis’ dogs with America’s healing and struggle for liberty. Travis was given the chance to name the newly arrived stray.
    He could have just as easily called him Ishmael.
    On a basic level Old Yeller is a kid’s story of adventure on the frontier.
    But the author of both the book and the screenplay delved into deeper levels of concern even though very simply put.
    Below is dialogue from the movie’s opening scene, to wit:
    Arliss: “What’s pop gonna sell our steers for?”
    Travis: “For money of course!”
    Arliss: “What’s money?”
    Travis: “It’s what you buy things with.”
    Arliss: “What do you mean buy things?”
    Travis: “Well you got money ya give it ta people for stuff. They say you can get anything for money.”
    Arliss: “Anything!!!!!! What’s it look like?”
    Travis: “I never seen but one piece…a dollar bill Papa had. Its paper”
    Arliss: “What did Papa get for this dollar?”
    Travis: “Nothing it was no good.”
    Arliss: “But you just said you could get anything with money!”
    Travis: “Well you can..Papa’s was Confederate.”
    Arliss: “What’s Confederate money?”
    Travis: “Confederate money…well…’s……..
    Arliss: “ Well!?????”
    Travis: “Don’t you ever run out of questions!”

    Maybe we should be more like Arliss and ask more questions about the nature of money.

    Dec 27, 2013 27:51 AM

    I am gaining more respect for Gary as time goes by. He has some great charts on his web site. I will have to give a subscription with him a try next year, have not even checked the price yet, but will.

      Dec 27, 2013 27:53 PM

      Maybe you should check a chart of the Dow versus the dollar while you are at it, Chris. It is Gary’s contention that stocks will DECLINE as the the dollar falls proving the economy is weak or some similar nonsense. But then again Gary does not know his facts because more typically the dollar and stock markets will track inversely one another during trend changes which tells you that devaluations actually push stock prices UP not DOWN.

      If the Fed has any real plan by the way…..this is probably the nut of it for next year.

      Keep this in mind as you are investing this coming year and watch for the more usual pattern to reassert itself. Ironically enough, Fed interventions have done little to impact the dollar versus the basket of currencies it is weighted against since the QE’s began. Even stranger that the dollar has been positively correlated with equities several times this year. Hmmm….I wonder…..

      I happen to agree with Gary that the dollar will go through another period of devaluation now that tapering has arrived however where we differ is that I believe it is going to be a positive for stock markets at a time when they might otherwise be weakening. The newsreels incidentally are flashing that the economy is heating up at a time when unprecedented intervention is being withdrawn. No accident there either. They have basically said that withdrawals will proceed regularly this coming year barring any data driven event that forces them to change course so we shall anticipate the reductions to be a regular event until they have dropped to zero.

      Very simply, how I come to my conclusions is that a falling dollar is suggestive of incipient inflation building in the background which will force a sectoral rotation out of bonds and debt markets and into equities thus driving them higher. Most of the sidelined money is sitting in various bonds anyway. Where the heck else will it come from?

      So the Fed magicians are now telling us interest rates will stay low but inflation will be pushed higher. That is EXACTLY the message they want us to hear and it should be the one investors got from the Chairman during his last speech where he made so many direct references to inflation targetting. And that is a big flag if you are sitting in long term “safe” positions and getting eaten alive little by little and day by day.

      I think we should take the Chairman at his word. EG….don’t fight the Fed.

      Maybe this is the real reason the market has been scaring the poop out of us with worries over Municipals and European debt this past year. Even junk is paying nothing compared to the performance of the stock averages. It is obvious to me where money is being pushed therefore and earnings probably won’t matter all that much when you are still getting stock appreciation month after month (it will eventually crash by the way….just not this year in my opinion).

      By the way, Gary also noted this is one of the longest stock bulls in the last 100 years. That is indeed the case. It is the seventh longest thus far however that in itself is not evidence it will end this month or next. We seem to be living in a different world lately and I would not frankly be surprised to see this one push for the record books. That might suggest stocks keep rallying right through the end of 2014 with little more than a minor correction as we go there.

      And that is my prediction for 2014 (we all love predictions, right?)

    Dec 27, 2013 27:07 AM

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    Dec 27, 2013 27:14 AM

    So…. 1030$ off the table…. again?

      Dec 27, 2013 27:53 AM

      I’ve been cautiously optimist that the June low was going to hold for about a week now.

    Dec 27, 2013 27:43 AM

    weak economy? 4.1 GDP minus 1.7% for inventory build and ~.5% for the method change 7/1/13 for ip and e books.

    How about not taking enuf out of GDP for inflation.

    and do not forget that with 700 bil to 1 tril of deficit, that alone is 6% of GDP so without deficit spending we have a contracting economy.

    Anybody think they want to cut spending

    Dec 27, 2013 27:45 AM

    something wrong with dollar because debasing continues as noted above.

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    Dec 27, 2013 27:24 PM

    Dec 27 Party On! Puru Saxena 321gold
    Differant opinions everywhere.
    Thanks Gary, I for 1 do appreciate your views.

    Dec 27, 2013 27:52 PM

    The only ‘manipulation’ is by gold stock newsletter writers trying to sell subscriptions to the gold bugs. All you have to do is be wrong for years, flip flop constantly and wait for one of your many contradictory calls to be right then claim ‘you called it.’ Pathetic.

      Dec 27, 2013 27:22 PM

      Reminds me of the California gold rush: The guys who sold the shovels often ended up richer than those who bought them.

        Dec 27, 2013 27:48 PM

        You figure there is money in writing newsletters? The business is pretty well dominated by 50 decent free blogs and as many well known personalities. I wonder why some even keep writing since the blogging and commentary management portion of the business seems to consume most of their time and talent while the subscribers sometimes don’t get a whole lot more than the free side offers anyways. And then there is all the abuse that gets hurled your way in the usual course of a year because well….the world is full of idiots who know better about pretty much everything. I am actually amazed at how much effort some guys put into their news and analysis portion of thier sites. A guy like Mish cranks out several posts per day but it leaves you wondering how he can also find time to meet clients, sort accounts, invest funds and monitor market changes all at once. The guy is surely a bat because it seems he never sleeps. I mean he organizes his own conference, travels around frequently, makes appearances on radio and TV through the year and yet still keeps cranking out articles with abandon. Youn can’t afford to get the flu with that kind of daily routine. He is not alone either. The best known ones are cut from a similar cloth. So yeah, maybe it pays the bills but there can’t be much time leftover to enjoy your family and kids or just plain out relax.

          Dec 28, 2013 28:20 AM

          lol….good points

            Dec 28, 2013 28:24 PM

            I agree with Bob about lots of good points from Birdman.

            I prefer internet sites and blogs over the mainstream media because I get more info surfing the net than listening to a handful of shill/pundits/propagandist more than willing to tell me what to think.

            I like this site because it forces me to see things in a different way than if left to my own devices. But I don’t make investment decisions based on that commentary because I believe in personal freedom and individual responsibility. Thus I have to suck it up on the downside and be disciplined enough to take some profits on the upside while maintaining a core position–which currently is underwater.

            But back to JJ:
            When a few big houses can slam the PM market to the downside because they’re too big to fail or jail, you can call them market makers, manipulators or whatever, but it corrupts/distorts the free market. When they see more profit on the upside the market will turn and began another bull run. Since the commercials seem to be loading up, it’s only a matter of time before the hedge funds join the party. …And of course, as usually, the private investor will be the last in and first up on the upside as they were first in last out on the downside. The question remains how long before program trading kicks in to the upside………….

      Dec 28, 2013 28:21 AM

      It wouldn’t be so bad if not for all the finger waggly i-tried-to-warn-you and “everyone-who-doesn’t-listen-to-me” is the dumb money alongside the repeated bad calls.

    Dec 27, 2013 27:14 PM

    JJ, I have an idea for writers, an old magicians trick, maybe even get yourself called a prophet.
    For example, say, an election, how about the last american president?
    In the LA times you have printed you had a dream or “trance” etc and saw Obama elected, in the NY times have printed in your dream you saw Romney win etc etc until you cover all possibilities. Then once its decided you bring out the correct “prediction” and your the new prophet. An old trick to be sure.

    A few magicians have had pretty good success with that. There are other “prediction” technices that work too, and once youve done a few in a row…. Ta Da, you on the Oprah Winfry show. lol

    Dec 27, 2013 27:16 PM

    Absent income growth in our domestic work force (where MEDIAN income has been falling for years–forget the MEAN which masks the fall of the middle class),

    ‘credit growth drives economic growth while liquidity drives asset prices’.

    And there are ‘two sources of liquid: the Fed and Foreign banks of our trading partners with a positive trade balance that don’t want to hold our dollar. This tells me the FED may very easily lose control. Tapering too much too fast and you crash the markets; too little to late and you pop the bubble.

    For who like fundamentals explained through numbers($) here’s a great discourse on credit and liquidity and the global market’s dependency on America’s teetering economy.

    Dec 27, 2013 27:23 PM

    Some of the posters with their cheerleader have forgotten the fundamentals of what is really happening. DT

    Dec 27, 2013 27:29 PM

    i put a little s/t money on gold and silver dropping based on Gary’s earlier analysis…we keep missing the closing targets…as we did yesterday and today. Hopefully it goes down and then spikes so we can make $ twice. If it doesn’t work I have no one to blame myself. Recently I was reading in the AU report that gold producers should form a cartel as oil has. Thoughts?

      Dec 27, 2013 27:27 PM

      As a general rule they cannot do that, Canuck, because the effect would amount to collusion in price setting of a currency equivalent. In practical terms it would mean they are artificially putting a floor under the low bid and would be reducing volatility while also suppressing normal price discovery mechanisms. It is an interesting idea no doubt but it is also a form of market manipulation. Sure, they Arabs could get away with creating a cartel because they held most of the energy cards during the 70’s but in golds case where it is so widely traded and mine sources are much more equally spread across the globe it would be a dogs breakfast of price management with an uncertain leadership at the helm. It may even be subject to takeover by those with significant interests at stake such as Russia or China. At the same time it would defeat the London Gold fix and simultaneously impact currency valuations which amounts to stepping on the toes of central bankers. Nobody would agree to such an idea even if the current system is somewhat flawed. Why would buyers want fixed pricing anyway when it suits us better that weak miners get weeded out by more democratic forces and strong ones are forced to bring dividends to attract and hold investor interest. The whole idea is undemocratic and would only lead to abuse of the buying public both where stocks are concerned and certainly where metal is used in coins, jewellry or industrial applications. Do you really think it is a good idea for you? How about if bakeries fixed bread prices at 10 dollars a loaf to support their own industry? Is that good for anyone?

        Dec 28, 2013 28:00 AM

        I largely agree with you in princie…but if a mine were to say “we are not profitable at these levels and will not be selling into the market until gold reaches 1300” and those saying it were barrick, gold corp, Kinross and Newmont, and they simply stockpiled their gold…that could push gold prices higher…but im not sure how it would unfold.

    Dec 28, 2013 28:10 AM

    Hello. Debt ceiling crisis. Heard of it? The dollar going down at the moment is starting to reflect nervousness on that count. To attribute it to the economy is just silly. What we likely have ahead for gold is a very, very tradeable bounce. The budget deal did not resolve the debt ceiling, and the GOP has begun sabre rattling. How else will people see that (at first) but as a reason to avoid the USD. Once it is resolved, we’ll prob get a nice strong USD rally. GLTA

    Dec 28, 2013 28:11 PM

    I just got Spink’s rare coin yearbook as a Christmas prezzie. Almost everything up, across the board. Gold down 30%. Rare coins up, some a lot.

    Schiff tells us that avoid rare coins, blah blah. Bad advice. Rare coins are fun. Bullion is boring.

    I fancy that if the US dollar takes a tunble to the 2008 lows at 71-72 on the USDX, gold has a shot at a rally to around the $1520 area and not to a new high, no way. Once it hits $1520 there it may find massive resistance and down we go again, I think. Maybe it won’t make it to $1520, perhaps just to $1430 where there is also big resistance from late 2013 and late 2010. New highs? No way Gary. Not yet anyway. Years to wait, unless the US dollar breaks below 70 and goes to 50-60 or something.

    This is looking more like the 1980s. Gold crashes like in 1980-82, then a few years later has a good bounce (like in 1986-1987) and rare coins go ballistic and have a bubble with all kinds of pump and dumpers touting rare coin portfolios, etc It’s happening already. Then they crash and gold also goes into the tank for another decade or more.

    Now there was a find of fab grade Sovereigns that went on sale this year. Some went for almost unheard of prices, most bought by dealers , soI am told by a pretty reliable source. They have to distribute those to the punters at a profit, so watch this market for a while to see if it roars.

    Dec 30, 2013 30:58 PM

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