Secretary of the Treasury Steven Mnuchin — a man who speaks like he superglued his teeth together — does not favor a strong dollar. Heck, he’s stomped on the dollar, kicked to the edge of a cliff and booted it into thin air.
And that, as much as anything, is why the U.S. dollar recently hit a three-year low. And gold hit a two-year high.
Can you profit off this? Oh yeah, you can.
Here’s the U.S. Dollar-Japanese yen cross-trade, which captures a good picture of the dollar’s predicament. It reminds me of the time, back in the day, when my Dad’s Chevy Nova threw a rod, then caught on fire on the side of the road.
There were two important levels of support on this chart. The dollar broke both of them. On the same freakin’ day. Ouch!
We should see a bounce here. But still, that trend is as bearish as the Grizzly exhibit at the National Zoo.
You’ll see that, as the dollar goes lower, gold goes higher. That’s not a coincidence. Gold is priced in dollars. As one goes up, the other gets hurt. I call it “the see-saw of pain.” Now, it’s the dollar’s turn to take a bone-jarring drop.
Through gritted teeth, Sec. Mnuchin said that that the dollar can fluctuate, and he is not concerned by the current weakness.
This has strong-dollar advocates in an uproar. Surely, they say, Sec. Mnuchin knows the consequences of this. Hedge fund manager Ray Dalio called a weakening dollar “a hidden tax on people who are holding dollar-denominated assets and a benefit to those who have dollar-denominated liabilities.”
Well, you know what else a weakening dollar is? It’s a boost for U.S. exports.
Our goods are cheaper for foreign buyers. So, this has the potential to lower the U.S. trade imbalance and boost the economy at the same time.
And you can bet those are Trump administration goals. We know, because President Trump has said just that. Many times.
President Trump wants to see GDP up! Unemployment down! Exports up! Imports down!
And if inflation has to go up at the same time … Trump doesn’t care.
And what happens to gold in all this?
Gold went higher. I expect zigs and zags in gold, just like I expect zigs and zags in the dollar. But if the metal can close convincingly above $1,400, then a whole heck of a lot of gold miners will start to look good.
Hold the Phone!
Wait! Wait! After Mnuchin’s weak dollar comments triggered a firestorm of derisive comments on Wall Street, President Trump gave an interview in which he said: “Ultimately, I want to see a strong dollar.”
And trying to quiet the hullaballoo, Mnuchin clenched out through a tight smile that his dollar comments were “completely taken out of context.”
I don’t think so. I think Mnuchin knew exactly what he was doing. I think he’s doing President Trump’s bidding. And that’s to push the dollar lower (in the shorter term, anyway) to boost U.S. trade and the economy.
The fact that U.S. GDP growth just came in at 2.6% — well below expectations – adds an urgency to this.
But I’m glad that both Trump and Mnuchin favor a stronger dollar “ultimately.” This lines up with the Edelson Institute forecast that, eventually, money flows from around the world will chase safety and returns in the U.S. market.
And that will drive the dollar higher.
But it can be a while before the dollar starts to head higher again. And gold will springboard off a sinking greenback.
And it’s not the only one. MOST commodities are going higher.
And this commodity rally comes off very low levels. In fact, it’s a generational buying opportunity for many commodities. I explained why in a recent column. And I gave a 20-minute presentation about it in Vancouver last weekend, at the Metals Investor Forum.
You can watch that presentation, FREE, right here: https://youtu.be/yuglu84QDT4
There are plenty of ways to make money on stronger gold. Stocks that will shine even brighter than the metal. It’s time to get busy. The next leg down in the dollar — and leg up in gold — could come sooner rather than later.
All the best,
P.S. That’s it for this week. I’ll see you again Tuesday afternoon. Remember, you are now receiving the Wealth Wave three times a week as my thanks for being a valued subscriber. You can read your first two issues — “Run With These Bulls” and “Burnt Fingers Hand You Big Bargains” — on the Edelson Institute website.