Investment Research Dynamics
I love days like today when both gold and the dollar are green. Historically, some of the best moves in gold occur as gold and the dollar move up together for short period of time. Today, of course, is just one day. And there’s no question that the Trump Government will need a significantly lower dollar in order to stimulate U.S. industry, assuming the latter is at all possible anymore.
On the other hand, if somehow Trump manages to get Congress to pass his border control and excise tax proposals, consumer prices on the products being imported at prices much lower than the same products can be produced domestically will soar. Let’s not forget, gold loves inflation.
In terms of the fundamentals supporting gold, the Fed’s unanimous decision to leave rates unchanged confirms my suspicion that the likely next move sometime later this year will be some sort of loosening of monetary policy. Consumer liquidity continues to dry up. This is especially evident in the retail sales reports plus the big drop reported for January auto sales.
In addition, various price inflation reports are starting to emerge. On Feb 1st, Bloomberg reported that the Citigroup Inflation Surprise Index, which is a global index that measures price surprises relative to market expectations, is at its highest in more than five years. Even the Government-produced inflation reports in the U.S. have been coming in “hotter” than expected. This is a difficult feat given all of the hedonic adjustments plus other various gimmicks the Government statisticians inflict on the data in order to mute the ability of the index to measure true inflation (note: the manipulation of the CPI was implemented by the Arthur Burns-led Federal Reserve shortly after Nixon closed the gold window – they knew what was coming, which was massive money supply expansion and the resulting price inflation).
In other words, even the Government will be unable to hide fully the effect that trillions of QE and credit expansion is having on consumer prices. This will act as a turbo-booster on the price of gold when this reality eventually grips the capital markets.