Wednesday, June 7, 2017

Currency Recalculations Coming

In this low rate environment something is happening behind the scenes. The Federal Reserve keeps implying that they will raise interest rates. This action should be like steroids for the dollar, but the dollar has failed repeatedly to climb to new highs. In reality, it keeps testing new lows and with contract volume. One gets confirmation from the 10-Year note. No matter what the Fed does, it keeps pointing lower and it could break 2%, again. It is like Ripley's, Believe It or Not.
Gold has overcome a variety of obstacles to climb this year like the antagonism of fiat oppression and the Bitcoin. One would think that the Euro would sink with Brexit, and indebted nations like Greece, Italy and Spain dragging it down. It did. The Euro has declined considerably and it began 2017 at a decade low of 103 and change. Many say that it will die over time. I would agree, but now, I see it getting stronger which adds more confusion to the currency situation. Finally, we have the Yen. The central bank of Japan wants to devalue to stimulate their export economy. They lowered its value beyond 120, but again, strange things are happening to world currencies. It is getting stronger. The big question is
There are too many reasons, but one stands out in my mind. When Clinton achieved an economy with a surplus, the weakening dollar was central. The Federal Reserve masked inflation and with no wars, military spending dropped. With high employment no one complained until everyone realized that wages didn't grow enough to cover inflation and we were all poorer. Digging deeper, it was worse. Globalization ravaged our manufacturing sector. The weak dollar didn't help and when gas prices climbed, the cries came out and Bush got in:Out from the fire and into the pan.
Trump wants a weaker dollar to stimulate the economy just like Clinton. Maybe there is a collusion among the central bankers to drive down the dollar, again, just like in the past under Clinton.
What I See
In the near-term I see the dollar falling to around 91. It is getting set to nail 95. At that point a closer look at contract volume will determine a consolidation, a bounce or further fall. I see the Euro getting its current bounce to 114, and again, a look at the volume to determine the next level. The Yen will test its low of 101 with the same understanding as it approaches that value. With all these recalculations happening, gold will benefit, especially when the parabolic move of the Bitcoin fails. People will realize that if this digital nothing can rise over $2,000 per coin, how much more is gold worth? If that doesn't sway them, the negative interest rates that banks will charge them should open their eyes to the failure of fiat debasement of their money. Until that epiphany, gold will climb the wall of worry to $1296 and $1324 is within reach.
These currency moves will cause a problem for some while others will benefit. It is like Paul Simon's song, "One man's ceiling, is another man's floor."

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