“It is not just in Trump’s case that conventional rules no longer apply, they also appear to have been thrown out the window for precious metals in these first few weeks of 2017, namely that a strong US stock market means weak gold. Instead apparently strong economies, a record breaking stock market and recent highs for gold all seem to be able to exist in one realm of reality.”
MK note: Though the point is well-taken, that was a quick honeymoon.
A good deal of the buying, as reflected in the strong uptick in ETF volume, is among knowledgeable fund managers. Pushing that concern, in my opinion, is a growing belief that a coordinated devaluation of the dollar along the lines of the 1985 Plaza Accord might be in our collective futures. Many of the same circumstances that prevailed then are in place now, i.e., concern in both the U.S. and overseas about an overly strong dollar (including on the part of the Trump administration) and major capital flight in places like China and parts of Europe.
David Marsh, the highly respected advisor on foreign exchange to asset management firms, recently told CNBC that there will be a new “accord” in the next 12 to 24 months. The dollar, he says, is mid-stride in one of its strongest showings since the end of World War II, up 10% or more in each of the past three years. It is doing, he says, “exactly the opposite of what (President Donald) Trump says he wants.” He concludes, “I foresee it will carry on getting stronger for a year or so and then we will have a dollar collapse, just like we did in the early 1980s.”
The next G-7 meeting is scheduled for May in Italy, and with the Trump administration’s penchant for negotiating in full public view, I would suspect that any attempt at a new accord will be front and center with accompanying fireworks in the investment markets rather than something that evolves behind closed doors. We suspect in the meantime that a good many will follow the lead of analysts like David Marsh and get ahead of the potential dollar devaluation. An argument could be made that the recent increases in the gold price and ETF demand are a direct reaction to the possibility of a devaluation.