USD Looking For A Reason To Drop While Gold Warms Up Its Engines On The Launch Pad
A few days ago, I mentioned on X-Twitter that the US dollar was trading like it was looking for any excuse to correct. It got the making of an excuse when a couple of employment reports came out that indicate the jobs market is in a tough spot.
Despite the smoke and mirrors jobs numbers (that are consistently revised in one direction) that the government puts out, they don’t change the reality. Full-time jobs are in decline, while workers are taking on more than one part-time job to make ends meet. They are trying to prop up the numbers by growing government jobs, but that is an economic drain.
They can play around with the numbers, but that does not mean their unemployment rate accurately portrays the real job market, as they don’t differentiate between full-time and part-time jobs, or that the government is hiring to help their election hopes.
The Fed is failing at their dual mandate on the jobs front and price stability. Firstly, they caused the inflation with their prolonged Free Money Era, painting themselves into a precarious position by needing to jack rates up at an unprecedented clip. Why anybody pays attention to their nonsense is still a mystery to me.
Often I hear analysts (mostly Americans) say that the US dollar is the least dirty shirt in the fiat currencies market. It is a pretty dirty shirt in a world of dirty shirts. The cleanest currency is by far gold with silver a close second.
Nobody forces them to buy dirty shirts. Especially when there are perfectly good clean ones that also force discipline on central bankers and politicians.
I was recently informed by one of my followers on X-Twitter that nobody is losing sleep over the national debt. If that is the case, it is only because they struggle with simple math and logic.
The obscene spending by the politicians and Fed policy causes inflation by devaluing the purchasing power of the dollar. I’m certain a lot of people are in fact losing sleep over inflation and how little their dollars buy them.
The job market is in a tough spot that won’t get better any time soon. The snowball is picking up speed. The economy is not in good shape. The currency traders are figuring this out, they have been willing to prop up the US dollar because the Fed has kept interest rates high for so long.
The Fed and the government can only put out made up jobs numbers for so long. That horse is leaving the barn.
A recession that causes more pain in the jobs market is not a good look for the upcoming election when it comes to the incumbents nor whomever gets in after the election. The incumbents will deal with the short term pain at the polls and the winner will be handed a tough economy to deal with.
No matter who gets in, politicians will do what politicians do, they will keep up with their prolific spending. It is kind of shocking that Trump set a record for spending and Biden topped him. Yet, they are the two selections to be the next president.
Which ultimately means that the Death Spiral of Debt is going to get much worse. As it does, servicing the debt is well on its way to becoming the biggest expenditure of the government.
The solution they will use for the mess will be the same as it has been since the 2008 GFC. The Fed will cut rates, most likely back to near zero, they will get back on the QE bandwagon and the politicians will spend in an insane way.
When the real way to fight the Death Spiral of Debt is a return to the Gold Standard and I would also make the case that the Silver Standard is also very good. Investors that use this strategy will be on the right side of history.
My favourite way to play the return to sound money with gold and silver is through the mining stocks. They are still trading at or near historical low valuations.
To have a real gold bull market, silver also has to participate and that is just starting to happen. Yet, silver still needs a big move to get to the all time highs. In addition, the gold and silver stocks need to join the gold bull market, which has only slightly started.
At the end of the day, gold and silver are sound money and investors certainly need to be holding more sound money instead of fiat currencies.
Friendly Trends
In a recent report, I mentioned that I saw a basing period in gold that reminded me of the one earlier this year, and that gold was ready for another rally. We saw a significant breakout last week, and this time I see it taking gold over $2500.
Silver also had a nice breakout last week, it looks primed to get over $35 during this current rally.
Copper is shaping up for a move above $5 per pound and I’m looking for it to exceed that price and stay well above it.
Gold is always a leader in a metals bull market, it was during the 2001 to 2011 bull market and is playing that role again in the metals bull market that is currently forming.
When it comes to metals stocks in a bull market, the gold stocks are the leader and it is the bigger ones that move first. This is playing out before us now and is about to gain momentum as the gold miners report their second quarter financial reports.
The second quarter of 2024 had the highest average gold price for a quarter ever, it will juice up the gold miners second quarter with several having windfall profits. This is the key catalyst that will bring the gold stocks into the gold bull market.
Focusing on high quality explorers has the most torque to gold, developers and small miners are next. The mid-tiers and majors don’t have the same torque as the smaller players, but of course with much less risk, and are primed to significantly outperform the bullish moves in gold.
I certainly don’t think investors should buy any company with gold in its name, stick to the best in class. I focus on the ones that I think are the cream of the crop, no matter if I’m looking at the majors to the explorers.
Finally, while I’m seeing gold forming a strong base to launch from, the USD is also looking for a reason to drop. So, I think in this current rally, the USD will be under pressure and will add fuel to the fire for gold's launch.
All the best,
Allan Barry Laboucan
Disclosure
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