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Discussion Topics -- April 15, 2015

Gold Doing Exactly What Its Supposed To Do
Imminent 'Grexit'?
The Future of the 'Strong Dollar'

(April, 2015 discussion) As we film another video with gold hanging around the $1200 level, one can't help but ask, 'what's wrong with gold?' Well the answer is, 'Absolutely nothing!'. In fact, gold is doing exactly what it is supposed to do. In fact, the simple fact that gold has held up as well as it has as the dollar has seen one of its biggest rallies ever is a testament to gold's ascending role as an international currency. The inverse correlation between the dollar and gold is well known, but the divergence over the past several months has been stark. The dollar has rallied over 25%, and gold isn't down a penny. To put that into context, the last time the dollar index neared 100 was in 2002, when gold traded below $300 an ounce! Moreover, the last time the dollar and the euro were at parity was later that same year, again when gold was below $300. What this shows, is the gold's value in terms of dollars is just waiting for its turn...and this time, we won't be launching from $300, we'll be launching from $1200. You do the math. And make no mistake, the 'strong dollar' is not here to stay. It won't be long before the powers that be start highlighting just how negatively the strong dollar is impacting the overall health of our economy. Put simply, when everyone else is easing, don't expect the US to be the only one fighting the tide. This carries over to the prospect of an interest rate hike by the Fed, and you quickly begin to see just how difficult such policy will be to implement. It's no wonder rumblings of QE4 are already begun to surface.

All the while, the fundamental landscape remains remarkably supportive of gold as well. Just recently, Goldman Sachs came out with remarks about 'peak gold' hitting sometime this year. Meanwhile, both India and China remain voracious in their demand for the yellow metal. It doesn't take a degree in economics to see how that supply/demand equation is going to play out. Still in play is a possible Greek default, or worse, a 'Grexit', a situation that is both contributing to the decline in value in the Euro, as well as the rise in the dollar. The fallout of such an event could border on catastrophic, and cause numerous financial shocks to ripple through the market. And while such an environment might lead to further dollar strength, it will undoubtedly lead to gold demand as well. Such demand in gold as the dollar rises would only further highlight the dissolution of the historic gold/dollar correlation.

In a quick note on the market, a couple of remarkable opportunities have surfaced of late within the broader sphere of precious metals, namely in silver and US $20 gold pieces. Both afford the client the opportunity to increase gains moving forward should we return to a rising price environment. We invite your inquiry if you'd like to learn more. 27:24 Minutes, with Jonathan Kosares, Peter Grant and George Cooper.

Figure 1

Gold dollar

 

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