Analysts took notice on Tuesday as the dollar continued its five day plunge. The drop followed sharp comments by the Trump administration last week aimed straight at the Federal Reserve.
According the President, the Fed is taking away our competitive edge with China and the European Union and could stop our economy in its tracks.
Will the feud continue, or even get more heated?
More tweets came from President Trump today, expressing that he was “not thrilled” with the Federal Reserve and its recent bias towards higher rates. He is calling publicly for Fed Chairman Jerome Powell to do more to help him boost the economy.
Investors seemed less than optimistic about this war of words. Gold notched its best one-day gain in August on Monday on safe-haven demand.
Wall Street has had its eye on gold this week as indicators showed a U.S. Dollar/Gold ratio not seen since 2016. MarketWatch reports that “investors are wagering that [gold] has achieved a tentative bottom.”
“Bargain hunting by long term investors is playing a part,” said an analyst. “Gold’s overdue a relief rally.”
TD SECURITIES REPORT CALLS FOR HIGHER GOLD THIS YEAR
TD Securities issued their own report this week detailing why they think gold will be rebounding further in 2018:
1. The dollar has topped out
TD says that “the dollar rally appears stretched.” Comments from President Trump are rattling investors and Federal Reserve policy is under fire from all sides.
2. Concerns about Turkey’s currency crisis seem overblown
The dollar and other major currencies have benefited temporarily from a recent flight to quality. However, investor skittishness about potential infection from the Turkish lira to other smaller currencies now seems to be settling down. The country remains in serious trouble, but the dollar may not get much more safe-haven flow as its lack of relative appeal become more clear.
3. The yield curve is flat
Investors have been distracted from fundamentals, until recently. “As dollar strength lets up, focus will return to the flatness of the yield curve,” says TD Securities. Typically, a flat yield curve is supportive of higher gold prices.
4. The Fed should wrap up its interest rate hikes this year
Atlanta Fed President Raphael Bostic said he expects just one more interest rate hike in 2018. Tensions about trade and serious international events are increasing risk levels for the U.S. economy. Too much rising of rates could choke off growth and new investment at a critical time.
We’re not much for market timing here at the Hartford Gold Group, but it is important to be aware of what is happening in the wider markets.
TD Securities analysts reiterated the safe haven appeal of gold over the long term: “Gold typically has a robust negative correlation with the slope of the US yield curve and performs as a safe haven during times of turmoil.”
The research powerhouse noted that recent weakness in gold prices has been a function of currency dynamics rather than a change in fundamentals about gold long term. That is why they’re keeping such a close eye on the current threats to the dollar.
ANALYSTS SAY “DAY OF RECKONING IS COMING”
Another European company keeping an eye on gold says they think it is undervalued.
“Gold has become cheap (and undeservingly so), which offers an excellent opportunity for those who want to build up their gold positions,” said analysts at Degussa this week.
They seem to agree with the Trump administration, saying that hawkish Federal Reserve policy is not only threatening the U.S. economy but also economies around the world. “Many foreign borrowers have taken on US dollar denominated debt. An appreciating US dollar causes them quite some trouble.”
Increased debt costs on their dollar debt could be crippling for emerging market economies, at a time when both Turkey and Venezuela are already in severe financial peril.
“It appears that we are right in the middle of a situation in which market prices do not reflect ‘true values’: the stock market seems to be expensive, and gold is too cheap.”
– Degussa, August 2018
Just like TD Securities, these analysts want investors to remember the long term appeal of holding gold: “History teaches us that over- and under-valuations will be corrected over time.”
It isn’t too late to get positioned for the markets of tomorrow.
Don’t let over-dependence on traditional stocks and bonds become your Achilles heel.
Have you thought about what gold and silver, in your home safe and/or in a Gold IRA, could do for your family’s security?