Profile image
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

The Strange Case Of The Falling Dollar – And What It Means For Gold

Saturday, January 13, 2018 20:34
% of readers think this story is Fact. Add your two cents.

by Brandon Smith, Alt Market:

Trillions of dollars in uncontrolled central bank stimulus and years of artificially low interest rates have poisoned every aspect of our financial system. Nothing functions as it used to. In fact, many markets actually move in the exact opposite manner as they did before the debt crisis began in 2008. The most obvious example has been stocks, which have enjoyed the most historic bull market ever despite all fundamental data being contrary to a healthy economy.

With a so far endless supply of cheap fiat from the Federal Reserve (among other central banks), as well as near zero interest overnight loans, everyone in the economic world was wondering where all the cash was flowing to. It certainly wasn’t going into the pockets of the average citizen. Instead, we find that the real benefactors of central bank support has been the already mega-rich as the wealth gap widens beyond all reason.  Furthermore, it is clear that central bank stimulus is the primary culprit behind the magical equities rally that SEEMS to be invincible.

To illustrate this correlation, one can compare the rise of the Fed’s balance sheet to the rise of the S&P 500 and see they match up almost exactly. Coincidence? I think not…

FedBalanceSP.png

Another strangely behaving market factor that has gone mostly unnoticed has been the Dollar index (DXY). Beginning after the global financial crisis in 2008, the dollar’s value in reference to other foreign currencies initially moved in a rather predictable manner; collapsing in the face of unprecedented bailout and stimulus programs by the Fed, which required unlimited fiat creation from thin air. Naturally, commodities responded to fill the void in wealth protection and exploded in price. Oil markets in particular, which are priced only in the US dollar (something that is quickly changing today), nearly quadrupled. Gold witnessed a historic run, edging toward $2,000.

In the past few years, central banks have initiated a coordinated tightening policy, first by tapering QE, then raising interest rates, and now by decreasing their balance sheets. I would note that while oil and many other commodities plummeted in relative value to the dollar after tightening measures, gold has actually maintained a strong market presence, and has remained one of the best performing investments in recent years.

Something rather odd, however, has been happening with the dollar…

Normally, Fed tightening policies should cause an ever-increasing boost to the dollar index. Instead, the dollar is facing a swift plunge not seen since 2003.

What is going on here? Well, there are a number of factors at play. First, we have a growing international sentiment against US treasury bonds (debt), which may be affecting overall demand for the dollar, and in turn, dollar value.  For example, one can see a relatively steady decline in US treasury holdings by Japan and China over the course of 2016, with China being the most aggressive in its move away from US debt:

US-treasury-holdings-China-Japan-2016-11.png

We also have a subtle, yet increasing, international appetite for an alternative world reserve currency. The dollar has enjoyed decades of protection from the effects of fiat printing as the world reserve, but numerous countries including Russia, China, and Saudi Arabia are moving to bilateral trade agreements which cut out the US dollar as a mechanism. This will eventually trigger an avalanche of dollars flooding into the US from overseas, as they are no longer needed to execute cross-border trade. And, in turn the dollar will continue to fall in relative value to other currencies.

There is also the issue of coordinated fiscal tightening by central banks around the world, with the ECB and even Japan moving to cut off stimulus measures and QE.  What this means is, other currencies will now be appreciating in terms of Forex market value against the dollar, and in turn, the dollar index will decline further.  Unless the Federal Reserve acts more aggressively in its interest rate hikes, the dollar’s decline will be brutal.

Finally, we also have the issue of nearly a decade of Fed stimulus that has gone without audit (except for the limited TARP audit, which shows tens of trillions in money/debt creation). We truly have no idea how much fiat was actually created by the Fed – but we can guess that it was a massive sum according to the seemingly endless rise in equities from a point of near total breakdown, funded by quantitative easing and stock buybacks. You cannot conjure a market rebound merely with debt. Eventually, that currency creation and the consequences will have to set a foot down somewhere, and it is possible that we are witnessing the results first in the dollar, as well as the Treasury yield curve, which is now flattening faster than it did just before the stock market crash in 2008.

A flat yield curve is generally a portent of economic recession.

Read More @ Alt-Market.com



Source: https://www.sgtreport.com/articles/2018/1/13/the-strange-case-of-the-falling-dollar-and-what-it-means-for-gold

We encourage you to Share our Reports, Analyses, Breaking News and Videos. Simply Click your Favorite Social Media Button and Share.

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Total 4 comments
  • beLIEve

    We Could See An Upside Surprise In Silver At ANY MOMENT Including A JP Morgan Double-Cross

    Ted Butler says if JP Morgan exploited Bear Stearns in 2008, it’s possible JPM could be setting up for a double-cross of fellow COMEX shorts today…

    by Ted Butler via Silver Seek

    In the annals of silver in the modern age, there have been two well-known instances of very large investor accumulations of the metal. First came the purchase by the Hunt Brothers and their associates in early 1980, followed by the purchase by Warren Buffett’s Berkshire Hathaway, 17 years later. The Hunts were said to control around 100 million ounces of actual metal (plus another 100 million ounces in long paper futures contracts), while Berkshire held as many as 129 million ounces.

    Now there is compelling evidence of a third great investment accumulation of physical silver by none other than JPMorgan, one of the most powerful and connected banks in the world. This accumulation can be dated from the price peak of April 2011, after silver began what is now a near seven-year price decline. From zero in April 2011, the amount of silver in the JPMorgan COMEX warehouse has increased to 120 million ounces. Just about every ounce moved into the JPMorgan COMEX warehouse over the past 7 years has come from futures deliveries stopped (taken) by JPM in its own name. JPMorgan took delivery of 14 million ounces in December and so far, 13 million ounces have remained in the warehouses from which the metal was delivered. So this means that JPMorgan now holds more than 133 million ounces of silver in COMEX warehouses, or more than was held by the Hunt Bros or by Berkshire Hathaway at their peaks. There was a lot more silver in the world in 1980 and 1998 than there is today, meaning that JPMorgan’s accumulation is much more of an accomplishment than previous silver acquisitions.

    https://www.silverdoctors.com/silver/silver-news/we-could-see-an-upside-surprise-in-silver-at-any-moment-including-a-jp-morgan-double-cross/

    • beLIEve

      “Silver Is Going To Go Wild”

      Bill Fleckenstein: “Once the speculative fever starts to pickup, silver is going to go wild. If the crypto market has sensitized people to the idea that all of these paper currencies are worthless and they are abused by the central bankers, the average person is going to be…

      To continue listening to the powerful KWN audio interview with Bill Fleckenstein

      https://kingworldnews.com/silver-is-going-to-go-wild/

      • raisnbran

        i believe, cause i have hundreds of thousands of mining stocks that own the metal in the ground that are going to defy gravity when this show starts in earnest–time for a new private jet….

Top Stories
Recent Stories
 

Featured

Top Global

Top Alternative

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.