It’s All About The USD
There is no denying that 2017 has been a bad year for the US dollar. Chris Temple and I recap why everyone was wrong at the start of the year (expecting a strong dollar) and why now that everyone is a dollar bear could be wrong again.
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US Dollar at 92.61 Looks weak and if it keeps plunging down through the 91-92 support, then it could move into the high 80’s. That would be inflationary, and light a fire under the resource sector, as we postulated a few months ago.
I said the move would be just a bounce since it began a few months ago. The high 80s is a done deal and a complete retrace of the ’14-’15 move is probable.
http://stockcharts.com/h-sc/ui?s=UUP&p=W&yr=3&mn=7&dy=0&id=p80094666170&a=529253829
That makes sense to me, and yes I agreed back then that the “bounce” in the dollar would be muted and be in the 94-97 range. It ended up being a very muted bounce indeed.
The technical set-up is bearish on the US Dollar, and it doesn’t need to have a huge fundamental reason to pull back further as Mr T was looking for.
What fundamental reason did Iron have for skyrocketing earlier this year?
Why is Oil back at $60 fundamentally?
Why is the stock market climbing higher and higher for 8 years in a row without a meaningful 20% correction when the earnings haven’t come close to justifying that?
Why have the cryptos landed on the moon this year fundamentally?
None if it makes any sense fundamentally, and it doesn’t have to.
“The markets can stay irrational longer that one can stay solvent.”
The set up for the US Dollar is weak, where it put in a large double-top on the larger pattern, and is completing a Head & Shoulders pattern on the more recent action. Unless something drastically changes in the first quarter, it will likely break through the 91-92 level and dive down into the high 80’s. I don’t see the range the dollars been in holding much longer. Ranges don’t last forever, and eventually the market needs to break up or down, and currently down is the path of least resistance.
By the way, I agree with Chris that for years people have been banging on the drum about “China will sell their Dollars to crash the Greenback” , and so now those kinds of comments fall on deaf ears.
However, recently with all the Oil & trade deals going on between China, Russia, and Saudi Arabia, there is a legitimate point to be made that the Petro-Dollar is skating on thin ice, and the Dollar in general may get snubbed as a reserve currency. Some countries are back to buying Gold, Cryptos, or hard assets instead.
The Chinese don’t do anything suddenly or short-term, but I could see a persistent unwinding of their US Dollar position over time which will just apply mild yet chronic pressure to the downside. That doesn’t need to be a conspiratorial concept or involve space Aliens. Just a gradual rotation in the East of its processes and dependence on the West. It is already happening and will only continue if the US descends into a political and economic crapshow next year.
Ozibatla asked in October what would cause the metals & miners to break out above their 2016 highs, and my thesis then and now is that a US Dollar in the high 80’s will be the narrative the fuels the PM sector higher. A few people scoffed at that idea then if that is what plays out, then trying to jump into the PM sector at that point will cause most investors to miss the ride up on the Bull once again.
Doesn’t it make sense to at least put on a 1/3 – 1/2 position in the depressed miners BEFORE that dollar sell-off may play out? If Mr T and Doc are correct, and that doesn’t pan out, and the dollar turns around and surges sending the PMs into retreat, then one could always average down on that correction. However, if things really escalate quickly, having zero allocation is the higher risk IMO.
Personally my mining exposure is pretty heavy because this seems like a pretty reasonable scenario, and if the Dollar surges at the beginning of the year, that will throw cold water on this thesis and sting. I’ve been wrong before, but investing is about calculating probabilities, and from my vantage point, it is more probable that the US dollar breaks down than it turning around and surging higher.
Two weeks ago, I was 120% in. Now it’s more like 103%. I will lever up again when the time is right.
I’ve only got a few stocks on margin, but most are just regular positions, and there is a little wiggle room on my dry powder, so for the most part I’m “all in” as regards to Precious Metals miners and mostly in with Zinc. I’m still adding to my Uranium positions, and Battery Metals allocations (Lithium, Cobalt, Graphite) and want a bit more Copper exposure eventually. At present I have no Oil allocation and minimal Renewable Energy positions, but I may rotate some of the PM weightings over to those if we get a nice rally in the next few months.
Most commodities will outperform gold overall, as Chris said they should, and nominal interest rates will keep rising while real rates remain negative of close to it.
I agree with Chris that the economy is currently doing better than most pundits think but that could change quickly if the stock market finally declines materially. In an economy driven from the bottom up (i.e., a healthy one), the stock market doesn’t matter as much. However, this economy is driven from the top down by those who’ve got assets that have been rising almost relentlessly.
So… government bonds down, stocks down, real gdp and /or real gdp growth, probably down all looks particularly good for the PM space. Emerging markets and falling currencies will underpin commodities in general in addition to the precious metals.
Commodities bottomed versus real money 18 months ago and have looked great ever since.
$GYX (Industrial metals) priced in GLD:
http://stockcharts.com/h-sc/ui?s=%24GYX%3AGLD&p=W&yr=3&mn=9&dy=0&id=p85351844001&a=566041131
$GNX (Commodities) vs GLD breakout:
http://stockcharts.com/h-sc/ui?s=%24GNX%3AGLD&p=W&yr=3&mn=9&dy=0&id=p29169633975&a=566045171
I do agree that 2018 & 2019 should be very solid years for Commodities, more so than Gold.
That long-term scenario I agree with – China will extricate themselves when it is best for them. Prior, it’s MAD – mutual assured destruction – for them to “dump” dollar assets they still need/depend on for their longer-term goals
Yes, a sudden Dump that some have been warning about for a decade never made any sense as it would be “MAD”. (mutually assured destruction).
A slow and steady unwinding of their dollar horde over the next decade seems more reasonable, as they convert dollars into real goods and tangible items. This regular dollar divestment will just keep a gradual pressure on the dollar to the downside, but not enough to cause any big waves. (which wouldn’t be in their interest either). I don’t believe the Chinese or Saudis would have any problem with a Greenback in the high 80’s though over the next year.
More than any real fundamental reason though, the potential move down in the dollar seems more like a technical set up than any real fundamental data point.
Mr. T. – Thanks for sharing your thoughts and insights with us.
I think this H&S pattern will activate:
http://stockcharts.com/h-sc/ui?s=UUP&p=D&yr=0&mn=7&dy=0&id=p07816396371&a=560447704
Looks like the right shoulder is about done and we are ready for the downside fun.
I never did jump on the 105+ bandwagon…
http://stockcharts.com/h-sc/ui?s=%24USD&p=D&st=2014-07-01&en=2016-10-18&id=p40414093249&a=454118757
I did in 2015 and expected to see 110-111 as a final top. After that I was neutral through 2016 & 2017 as a case for a move either was warranted and it was just range-bound trading. Over the later half of 2017 I’ve gotten a bit more bearish on the Dollar, and the current set-up seems to favor a break down over a large surge higher.
Part of the reason I’ve increased my exposure to the miners (PMs & Base Metals & Battery/Energy stocks) so much lately is that I believe if the Dollar does dive, that it will be a tailwind for the resource sector.
Of course, if the dollar does really rally next year, it will put my portfolio in the hurt locker.
It’s a risk I’m willing to take because it seems more probable that we’ll see a Dollar in the high 80’s next year than in the 100-110 region.
I don’t think it will matter where the US dollar goes next year….copper and zinc will be strong……and I replied to your pot post Ex…
Hey Wolfster – Thanks yes I printed off your response at home about rotating into a few American companies and the California legislation that is brimming. Much appreciated. I’ve got some homework to do now. 🙂
As to the US Dollar’s importance – I probably camped out too much on this topic today, but in general I agree with you that regardless of what the Dollar does, that certain commodities will be strong.
Gold & Silver can also move in tandem with the Dollar and don’t have to be inversely correlated, and often they are not.
Having said that, when the Dollar is weak, inflation creeps up, and the commodities generally benefit with higher prices.
I believe Copper has the ability to move a bit higher, but it is starting to look a bit over-heated to me. As for Zinc, you know I’m a fan, but there is new production about to start coming on-line, and I believe we’ll see the spot price recede from it’s current lofty levels at $1.50 and settle more in the $1.20 area for 2018. This is still plenty high enough to make most projects economic and I’d like to see some mergers & acquisitions next year in the Zinc space and have positioned for just that.
The Gold/Silver narrative is just very sleepy at present and has been for some time. I am not a fan of the PMs moving up on temporary Geopolitical news, as it is always fleeting and not a true value driver. The real value driver narrative in the PMs should be grounded on financial concerns at the huge debt limits most countries are carrying, on the low to negative interest rate environment combined with a rising inflation from a falling dollar in the US. That combination with the falling dollar as a back drop IS a narrative that could trigger higher prices and a little enthusiasm from main street investors to diversify into the precious metals. Out of that influx some investors will elect to also position in the miners, and the higher spot prices will make the economics of current producers or advanced developers more attractive.
Bottom line: a falling and wimpy dollar will underpin rising inflation, and while that is not good news for the average US citizen, it will be a reason for the PMs to strengthen.
Can Gold & Silver do fine even the dollar surges – yes, but it will be more muted.
For clarity, if the dollar just moves back up into the 94-97 range Gold and Silver can still rally, but if for some outside reason, the Dollar got back up to 100+ that would likely pressure the metals and miners lower. It really would depend on how swift, how strong, and for what duration the Dollar climbs.
This is really getting long-winded, but ultimately, my point was that Gold and Silver and the commodity sector will only benefit from a falling dollar. A rising dollar creates more uncertainty, and normally punishes the commodities.
Based on how much the zinc stockpile is depleting I think zinc will stay near the $1.50 level even with some new supplies coming on line……found another pot fund(cgoc) that starts trading January 8. Means more buying of pot stocks
Wolfster – Thanks for the heads up on cgoc. I’ll watch for it’s IPO.
As for the Zinc price, Glencore is going to be increasing production in 2018, Trevalli has 2 new mines that are ramping up, Vendanta is ramping up production, Heron Resources will be coming online, and in 2019 Trafigura gets access to Nystars high grade zinc (currently going to Glencore). In addition, many of the Silver companies like Americas Silver are going to be cranking up the Zinc & Lead output and many smelters are eager for Silver/Zinc/Lead concentrates.
Those factors were the main reasons I expected Zinc to come off a bit back to the $1.20 level. However, if it stays at $1.50 though that won’t hurt my feelings any 🙂
The warehouse levels of Zinc are back to where they were a decade ago:
* Historical Zinc LME (London Metal Exchange) Warehouse Levels
http://www.infomine.com/investment/warehouse-levels/zinc/all/
Pot etfs are driving the price now imo….as for zinc,I guess I just don’t think all the new supplies coming on line make up for the big 3 mines that closed over the last 3 years..time will tell…..cgoc is run by Bruce cambpell….love using his redwood asset management fund for small cap picks. He knows his stuff….there’s also a small cap play with a few pot ipo’ s coming on line in 2018. Check out c.rks it’s undervalued based on all there pot and block chain investments going public.
This has article about California and includes ipo happening today for a c.rks holding.
https://technical420.com/cannabis-article/california-rec-coming-and-these-companies-are-going-capitalize-big-way
Here’s cgoc portfolio to begin
https://equity.guru/2017/12/01/ignorant-white-family-load-weed-stocks/
That was a funny article as well as informative. Thanks for the heads up on cgoc.
for rks do you mean Rockshield?
what are your thoughts on (CALI.CN)?
Mentioned in that article.
I warned about the dollar very close to the top when I posted the following chart:
http://stockcharts.com/h-sc/ui?s=%24USD&p=W&yr=4&mn=4&dy=0&id=p86442298025&a=454858999
O thou that telleth good tidings to Zion say unto the cities of Judah:
“Behold! Behold! The glory of the Lord has risen upon thee!”
What?
Good things going to happen for the Zionists?
Great stuff.
lol!
Kirkland on the list…………should make some happy new year ……….cheers……..
Novo is up 20% today and OLVRF is up 37% !!!
Bob and Ex will be happy……….
I don’t have any NOVO but am happy for those following the story and do have interest in some of the Pilbara Sisters like De Grey, Kairos, and Impact Minerals.
I agree with the premise that the Mid-Tiers will outperform the Majors in 2018, but I can think of a number of stocks that will out-perform many of the names on that list.
Most of those companies already put in big moves up, and will be starting the year from much loftier levels. It will be the 2 dozen other Mid-Tiers that haven’t gotten as much attention that will outperform on percentage basis when the metals start getting moving in 2018. It is the marginal producers that suddenly get into the profit zone and have a large percentage increase in revenues and free cash flows that deserve the re-ratings.
The yen has also taken quite a dive versus gold:
http://stockcharts.com/h-sc/ui?s=%24XJY%3A%24GOLD&p=D&yr=1&mn=0&dy=0&id=p23869155370&a=516694090
We may be entering a new chapter where Gold and the Yen will finally decouple.
I’ve thought that would eventually happen but it makes little difference if it does. The yen has fared just as poorly versus gold over the last 15+ years as any other currency. The yengold fanboys don’t seem to realize that.
For the long game, agreed it makes little difference what currency one follows as Gold will outperform in the big picture.
However, for the last 4-5 year the algos have been joined at the hip with the Yen and Gold relationship, and is was definitely something to consider. For a few years it was the same thing with the Oil : Looney relationship. These correlations eventually break down over time though.
I believe, the algos will be revamped to be less correlated to Yen:Gold scenario when Gold & Silver spike up beyond what the Yen does. This will cause a greater decoupling that feeds upon itself.
Honestly I’d prefer to see Gold “uncorrelated” to any assets – whether that’s the Yen, long-term treasuries, inverse Dollar, inverse stock market, or whatever. It is best when Gold and Silver march to the beat of their own drums.
For now, there is enough of a correlation in main stream investors minds that when the Dollar is weak, that the commodities & PMs will strengthen to start the next leg higher.
Joined at the hip directionally does not mean much if it’s performance that you care about. As I said, the yen has performed every bit as poorly as the rest versus gold.
I for one have never had any reason to concern myself with what the yen is doing. All the info needed is contained in the $gold chart.
That’s a good a point, as really all one needs is the Gold chart. When there were periods of indecision though, or if I was fuzzy on the Gold chart, some weeks I’d just watch the Yen for context clues, and traded accordingly. It helped many days to start by looking at the Asian markets in pre-market trading and then if Gold and the Yen were both strong, it gave me more confidence to be bullish in those set ups.
Vinny going for the crypto……back crypto with oil and gold.
https://www.zerohedge.com/news/2017-12-28/venezuela-will-back-its-cryptocurrency-5-billion-barrels-oil-gold-deposits
This was the point I was making above about more and more countries snubbing the US dollars for Hard Assets like Gold, Oil, other Resources, or for Cryptos instead. All of this will continue to pressure the Greenback.
Yupper EX.
The question I struggle with is how much currency do I want to keep around?
In banks or shoe boxes?
Paper and digits have got to be risky. Maybe everything is.
If I was physically fit enough (much younger) I would own producing land.
Course when I was young enough to work land I didnt have the cash to own it.
Funny how that works.
In my life the biggest assets are the people & relationships, so I try to invest in those daily, and the returns of love from family or laughter and merriment with friends are the best dividends and the biggest return on any investment I’ve ever made. Everything else simply supports the strategy around living a good life and sharing the experience with others. Cheers!
Having said that, I’ve always been big on diversification. Real Estate, Fiat paper, Precious Metals, main stream US Index Stocks, Bonds, Mutual Funds, Emerging Market funds, Resource & Energy stocks, and even a preppers collection of longer-term Food Storage & Water Filtration (since I’m in same boat with working producing land – the mind is willing but the body isn’t so much), batteries, Soap & Toiletries, and a well stocked liquor cabinet.
At the end of the day, all the financial instruments and planning, is meant to enable living a good life. Again, for me that is really about the people and relationships, and the financial tools are merely there to take off the pressure and burden of daily life and the debt monkey, and allow self-sufficiency, autonomy, and prosperity.
Ever Upward!
I am considering adding in a number of Solar arrays and Back Up Batteries into the mix, in case the energy situation gets untenable. I’d like to have my own supply of energy regardless of what happens to the power grid, and consider that another level of self-sufficiency, autonomy, and prosperity (as mentioned above).
Ah, come on guys! Scott Nearing was living on the land until age 100!
But I hear you. I always wanted land, but couldn’t afford it. Now, in South America, I can, and I figure I better do it now or never as I’m not getting any younger. I´m angling for micro-hydroelectric (and trompes).
Alright GH – maybe I’ll start a garden this year 🙂
Yup, that one might be one to buy.
Well, hard asset backed currency guys might be interested anyway.
Think they know something thats on its way?
Trump Warns China – “No Friendly Solution” If They Keep Cheating On Korean Oil Exports
“..Caught RED HANDED – very disappointed that China is allowing oil to go into North Korea…”
Trumps first hint of nuking China?
or is he merely saying he intends to cover China with radiation?
I think Russia has placed a few s 400s close to the Korean boarder, what I dont understand is why Russia and China dont surround N Korea with s 400s.
Politics I guess.
Americans don’t have the high prices we have here in Canada, they will get sticker shock if the dollar hits 77 cents, they still won’t get our prices because of the status of World Reserve currency. Who knows where The CDN dollar will end up, we have dreadful debt problems. DT
Timing is tricky, but the status of World Reserve currency for the US Dollar is exactly what is in play, imo. I can´t imagine why the rest of the world will put up with it much longer.
When they see that the emperor has no clothes and the US is incapable of ever paying back that debt, then the spinning top will start to wobble.
I do agree with Chris about Trump and most Republicans; they don’t know the meaning of conservative and are as left as the left when it comes to debt and deficit spending.
Still, Trump pretending to be a Republican is still far better than Hillary being who she really is.
I still think gov going into limitless debt is intentional.
For a long time I figured they had to know what they were doing.
Then I heard congressmen say things like the war between the states was a criminal act.
They thought the dollar was backed by gold.
List goes on of course, so…should they be forgivin as they dont have a clue as to what theyre doing?
naaaah, get a rope.
ditto……on the intentional comment…….bondage of all sheeple…
I think this sums everything up……..
https://www.youtube.com/watch?v=05_ruP3anXA
I really do hope that Cliff the high one is right about some truth coming out about these guys, and others in positions of power.
The truth has been out for a very long time but the sheeple are, and always have been, their own worst enemy.
‘Heed these words of warning:’ Ethereum founder threatens to leave if the crypto community doesn’t grow up
Frank Chaparro – 6 hours ago
> “Ethereum’s founder is fed up with the immaturity of the cryptocurrency community. ”
> “He threatened on Twitter Wednesday that he would leave if folks in the space don’t get their act together. ”
“Vitalik Buterin, the founder of Ethereum, thinks crypto is heading in the wrong direction. ”
“The 23-year-old took to Twitter on Wednesday to lament the immaturity of communities across the cryptocurrency market. He said folks in the space should understand the difference between enacting positive change for society, and just moving a bunch of money around. ”
“The market for digital coins has exploded this year, with bitcoin and ethereum leading the way. Ethereum is up more than 8,500% since the beginning of the year.”
“Also, ethereum paved the way for hundreds of initial coin offerings, a cryptocurrency twist on the initial public offering process. Autonomous NEXT, a fintech analytics firms, estimates over $4 billion has been raised via ICOs, which help startups raise capital outside traditional financial services. In total, the market for digital coins has exploded from just under $18 billion at the start of the year to a whopping $560 billion at last check, according to data from CoinMarketCap.com. ”
“Still, Buterin has questioned whether such gains are grounded in reality. “
I´ve been US dollar bearish since this time last year, and I see no change in the technical picture.
http://stockcharts.com/h-sc/ui?s=%24USD&p=D&st=1980-01-01&en=today&id=p22610673719&a=537366556
Good chart GH.
The Dollar is in the support zone at present, and sure it could bounce a bit, but it looks like it is set to dive down through that 91-92 zone to new lows.
If you extended the light blue dashed trendline at the bottom up a bit further it would likely target a level in the high 80’s (88-89). I could see that being first support if the greenback takes a ride down in 2018.
That´s how I see it too. Say, the lowest line of the Fibonacci fan, high 80´s as the next significant target. Longer term the chart implies it will go significantly lower than that. I would think the 2008 low could be taken out over the next several years.
Thanks GH. Well, that will really impact citizens in the US far more than they realize as prices for almost everything will escalate. Looks like 2018 is the year Inflation shows back up to the party.
I don’t know about short term, but I think long term there are a lot of things against the USD. Macrovoices has had an outstanding series on the USD over the holidays. It takes quite awhile to go through but I highly recommend it.
“If I am wrong someone tell me why”
Simple, the administration wants a weaker dollar.