Gold and silver start week on positive note, DoubleLine says return of twin deficits could be ‘structural headwind’ for US dollar
(USAGOLD –2/8/2021) – Gold and silver got the week off to a positive start as commodities rallied across the board, the dollar held steady, and bond yields continued higher. Gold is up $20 at $1836. Silver is up 58¢ at $27.59. While the Reddit Rebellion. Friday’s employment miss, and Biden’s $1.9 trillion stimulus package dominated the financial news last week, the Commerce Department also reported an event of more than passing interest. The United States unexpectedly ran its largest annual trade deficit in twelve years in 2020 – $679 billion. The return of an old nemesis – the twin trade and fiscal deficits – could create problems for the dollar down the road and perhaps even jolt the inflation rate out of its long-term slumber.
“The dollar,” says Double Line Capital’s Bill Campbell in a report posted at its website, “was already contending with structural headwinds. One is the large stock of international savings on deposit and invested in the U.S. A decline in the value of the dollar risks creating a negative feedback loop where hedging and capital outflows can exacerbate the dollar’s decline. Another is the weakening fundamental picture for the dollar due to America’s widening of the current account deficit and a growing budget deficit. These headwinds are likely to persist for the foreseeable future – not to mention being exacerbated by the aforementioned regional trade agreements and international policy actions.”
Chart of the Day
Chart courtesy of TradingView.com • • • Click to enlarge
Chart note: Despite the sell-off in the second half of January (an event that garnered considerable attention) in the mainstream media – gold and silver both outperformed stocks by a wide margin over the past 12 months (a comparison that largely escaped the attention of the mainstream media). Since late January 2020, gold is up 15.34%; stocks (DJIA) are up 6.39%. Silver, though, has stolen the show – up 51.47% over the past year. (All as of Friday’s market close)