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April 20, 2017 | Weak Dollar? Great for Gold!

James Corbett

James Corbett is an editorial writer for The International Forecaster, the bi-weekly e-newsletter created by the late Bob Chapman.

Trump loves a weak dollar. You might be forgiven for not having caught that story amidst all the other things going on last week, but there it was in an interview with the Wall Street Journal last Wednesday: “Trump Says Dollar ‘Getting Too Strong,’ Won’t Label China a Currency Manipulator.”

“I think our dollar is getting too strong, and partially that’s my fault because people have confidence in me. But that’s hurting — that will hurt ultimately,” Trump told the WSJ, adding, “Look, there’s some very good things about a strong dollar, but usually speaking the best thing about it is that it sounds good. It’s very, very hard to compete when you have a strong dollar and other countries are devaluing their currency.”

None of this should be very surprising, given Trump’s stated worries over trade imbalances and boosting the US manufacturing sector. But still, it managed to surprise the markets, which had already started to build a stronger dollar into the cake of the post-election “new normal.” News of the administration’s penchant for a weak FRN sent the dollar tumbling. That’s going to effect different sectors of the economy in different ways, depending on their reliance on imported materials or export sales, but it’s unequivocally good for the goldbugs.

The dollar and gold are, all things equal, inversely related. A strong dollar goes farther against precious metals and other commodities, pushing their price down; a weak dollar lifts them up. And so it should come as no surprise that the news of the weak dollar policy had an immediate effect on gold markets, lifting the spot price to its highest level since the elections, when uncertainty ruled the markets and the flight to safety effect kicked in. As of press time, gold is sitting over $1290 an ounce and flirting with the psychologically important $1300 level once again.

Given gold’s role as a safe haven in times of economic and geopolitical stability, and given its inverse relation to the dollar, things are looking up for the yellow metal.

Citi has just upgraded their full year outlook for the spot price from $1200 to $1220, citing an unstable policy environment and rising geopolitical tensions.

Credit Suisse, meanwhile, is even more bullish. They’re forecasting $1400 an ounce by year end, pointing to lower Treasury yields and a weaker dollar.

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April 20th, 2017

Posted In: The International Forecaster

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