Can the dollar and gold continue to rise in tandem for long? The last three months have seen a very peculiar dollar/gold anomaly. Since mid November, gold (and silver) have “acted” very differently. We have seen “outside days” and even an outside week. Gold has moved nearly $160 of its lows for a rise of nearly 15%. This has happened while the dollar has rallied furiously versus foreign currencies (with the exception of the franc). From a “textbook” sense, this should never happen. Actually, I am sure there are professors out there who would have argued “it cannot happen” …but it has. Both the dollar and gold have rallied at the same time, so far gold outpacing the dollar. But why? Why has the tone for gold changed and why is it not “falling” versus a rising dollar?
This is a very important question because the answer may (probably does) hold the key to which will be the ultimate winner and which may lose and lose big. First, the explanations for a strong dollar are twofold, one mainstream and the other probably the real reason. Mainstream says the dollar is getting stronger because the world is a mess and the dollar is the “cleanest dirty shirt” of the bunch. It is said the U.S. economy is getting stronger and interest rates will be raised later this year which will give the dollar a strong yield advantage. Personally, I see this argument as hogwash, I see the economy as very weak and getting weaker while the overall financial system is fragile. The reported “strength” of the economy has been proven to be smoke and mirrors, this last quarter for example was revised higher because of Obamacare, even the lobotomized know this is fallacy. A higher “tax” is not now and never will be economic “output”.
An increase in interest rates is almost a zero percent probability in my view with the exception of a forced raise to save a crashing dollar. I do not see the real economy nor financial system as having the ability to absorb higher interest rates of any sort. This is the current debate, “when will the Fed raise rates”? The answer in my opinion is they cannot, ever, until the markets force them to.
In my opinion, the dollar rally has been 100% synthetic and the result of a global margin call. Dollars on a global basis have been “purchased” to repay margin from busted carry trades. Fundamentally, less dollars are now required by the world to consummate trade. Less dollars will change hands on the oil trade simply because the price of oil has been halved. Less dollars will be required because nation after nation have cut deals and sworn off dollars in lieu of using local currencies. The list of countries is long and led by China who will transact trade using “non dollars”.
My point is this, I believe we will soon see this first batch of margin calls met. Couple this with slowing dollar demand for trade and the dollar should run out of steam. Surely your next question is, “but what if margin calls actually increase again?”. Aha! Good question and one which in my opinion is a mathematical certainty. We will get another round of margin calls …big ones! HUGE… because the recent volatility has created some dead financial bodies all over the world. I believe that as the bodies surface, more volatility will ensue. It will be at this point, panic will begin to set in and the margin clerks will be working 24/7. The opinion of Eric Sprott of this exact scenario can be found here. I believe this is well worth reading as his the arguments are well thought out.
This in my opinion will not create “net” synthetic demand because the question of “quality” will also factor in. To explain, yes there will be more demand for dollars to meet margin calls but when you add in the decline in demand for trade AND the flight from dollars as a credit consideration, then you will see a net weaker dollar. It is this scenario where I believe the rubber meets the road. The dollar will be viewed as a “credit”, in fact, I believe the dollar will then be viewed as the “credit” it is (or isn’t!).
The above needs to be put in simpler terms. Gold has outperformed the strongest paper currency over the last 2 1/2 months. The out performance has surprised many, even those in the gold camp have been surprised. Had a 15%-20% higher dollar been suggested as fact three months ago, a flat gold price would probably have been the best forecast even by most gold advocates. In my opinion, physical demand is finally beginning to take over as the pricing mechanism. The danger of a “call” for real gold is preventing the paper markets from getting much downside action as the cost of production acts as barrier. I also believe increased global demand is a function of “credit considerations” by foreigners as they look at and view the dollar.
Switching gears to “out of control” geopolitics, Greece just voted in the non austerity party. Within 24 hours of taking power, Greece is already turning away from the West. They are simply calling a spade a spade when they say they “cannot pay”. No matter how much they cut their budgets, interest and principal alone cannot be paid …and this is on money ALREADY borrowed. Greece is simply suggesting they “un” borrow it and receive write downs on what is owed, and this is the central core problem!. This is not just a Greek problem, it is a Western world problem, only Greece hit the wall first! They cannot pay, they don’t have the revenue, they don’t have the money, nor do they have the production capacity under any scenario. Greece will fail, the only thing in question is how it is handled. A very good read on the situation can be read here .
I would go even one step further than this piece does and say “It’s not the world who failed, it’s the Western financial system who failed”. I also believe the result for the rest of the Western world will be similar to what Greece is facing now. Do they continue the game (can they continue?) or do they “switch sides” so to speak? In my opinion, this is an easy question and one the Swiss have already begun to answer. They were the latest in a string of nations announcing currency hubs, Britain, Germany and Australia being notable predecessors. The West will one by one turn East.
The reasoning behind my writing this missive is simple. The thought process out there in “gold land” has just at the wrong time shifted to “but why can’t they just keep papering things over indefinitely?”. The answer is just as simple and if you stand back and put your “common sense goggles” on, you can see it. Our financial system is simply untenable. All collateral has already been margined. We arrived (in 2007-08) at the point in time where collective credit cards could only be paid by “balance transferring” to another card. New debt has needed to be issued just to service existing debt. Now, this is true even for sovereigns.
The comedy of course is the Fed. Everyone hangs on every word they speak. Everyone is hoping to hear “we will kick the can”. Let me help you stand back for a moment to see the forest. It has now been five years, since 2009, that we have heard the word “recovery” and the Fed will begin to tighten. Every year, every quarter and every Fed meeting we have heard the meme “the Fed will begin to tighten later this year or early next year”. Do you see my point? Nothing has changed since 2008, the only thing that has changed is the world is now further in debt, gobs of currency issued, yet consumption nor production are higher. The bad situation we were in is only bigger while the amounts of unencumbered collateral underlying it all are much smaller. In understandable terms, systemic RISK has never been higher!
Getting back to Greece for a moment, why should they matter? They are a very small and peripheral country in the EU. I am here to tell you they do matter for two reasons. First, financially, let’s call them a $350 billion burr under the system’s saddle. Looking at the sovereign debt market, rounded off, the sovereign debt market is $100 trillion so $350 billion is not very significant. You would be correct IF much of this debt was not carried with such huge leverage. If you consider the CDS “overwritten” and derivatives on this $350 billion, now you’re talking about real money! Maybe $3 trillion? Or even $5 trillion? More? Could the system collectively come up with a $trillion or two to paper this over? Maybe? The answer is yes they can, but with one very large caveat. Whatever salve to sooth the wound they come up with will be 100% printed because there is nothing left to “lever” off of. Think of it this way, Greece will be the “Lehman moment” with all the same potential dominos “plus two”. The extra dominos are the fact that Greece is a sovereign AND the thread that if pulled on will unravel Europe itself.
Digging even deeper and assuming Greece itself doesn’t set off a chain reaction, though the world ignored what Iceland did in 2009, I don’t think they can or will ignore it with Greece. Even if Greece were to get their requested debt reductions, they would soon be followed by the other “lazy” southern Europeans. Country after country would line up and ask for reductions. Should Greece come right out and say “we cannot pay”, or worse, defiantly say “we WON’T pay”, the same thing will happen. Other cash strapped countries will “follow the leader” and default.
To finish, it is important you understand that now is no time to “let your guard down” and fall into the “they can do this forever camp”. They mathematically cannot and as the math takes over, sentiment will follow …very quickly! I would like to add, the above has not been lost on China nor Russia. They fully understand it all and have been preparing for and waging a financial war, the U.S. being the ultimate target. Do they want to harm the U.S. population? I don’t believe so and is not their intent. But harm they will and the unsuspecting will be nothing more than collateral damage. The East only wants one thing, “true and fair settlement” of trade. They want “something in return for something”. Can you blame them?
The reason the can will not be kicked down the road any further is because the rest of the world, led by China and backed up by Russia will not allow it much longer. The alternative of course is unthinkable and has happened many times throughout history, real and bloody war. I pray the end of our current financial system is bloodless, the odds of this however are probably near zero.
Awesome Article Bill, just what the doctor ordered. Thank you, thank you, thank you! I am still 100% all in physical PM and I have been wanting to get the food prep going for the last 5 years but my wife has held me back. I have gathered a hefty supply of other non-perishables though. It appears the writing is on the wall and the time has come to pull the trigger on the final preps! GOD help us all!!!
yes it is.
The Western World will be dragged into playing fair one way or another.
We need to get over this US and THEM mentality.
The bankers of the world either need to account for their misdeeds or we get taken to war.
We either fix what is wrong or we destroy what is left.
Those are the choices facing us.
If you do not believe that the financial system as we know it is near collapse then you need to wake up and smell the stench of what is rotten.
Greece very likely will be the beginning of the panic that unwinds this all.
Greece is just another puzzle piece falling away from the U.S.
Another poignant and thought provoking article, Bill.
Instead of justifying war (as inevitable), we must start saying to our leaders/generals that war is flat out unacceptable and we must start spending the war monies on peace. Fat chance that will ever happen. . . .
dreaming…
If the U.S. Govt would let bankrupt companies go bankrupt instead of bailing them out with borrowed funds, we wouldn’t be in this mess.
And if they knew the end play was bankruptcy, not bail-outs, then hot air would not be colaterized.
Mother Nature will have her day.
The presumption in this article – and in numerous others by many others – is that the options are surrender or war. Since the approach of the “end game” is at least as apparent to TPTB why assume they have no alternative lined up? Granted, we have no idea what it might be but to assume there is nothing of the sort seems highly questionable to me. Assume the worst and you will rarely be disappointed.
the “worst” is war.
Bill,
Thanks for your great article.
The fat lady has started to sign so many times that her voice is raw, but sing she will and soon I think.
thanks Farrell
I suspect that it is too late.
The West has burned too many countries and lost its position of respect.
Our greed has allowed us to loose our way and now we must pay the price.
We can continue down the wrong path and use force to get our way but we cannot use our financial power to get our way.
We have so many risks now facing us that the world will never be able to control the outcome.
I am afraid we have past the critical point.
Now we must pay a severe price before returning the world to a better place.
The dam has too many cracks in it now and it cannot be repaired without it collapsing and being rebuilt.
It saddens me greatly to know that so few realize what is in front of us.
yes, it was too late a while ago.
Hi Bill, I enjoy reading your common sense
perspective on finance and geopolitics.
I have attached a link to Charles Hugh Smith
of Two Minds.com, the article states that the
dollar will continue to gain strength and
remain the world reserve currency. I know
where you stand on the issue but, would like
you opinion on the article. Thanks
http://www.oftwominds.com/blogjan15/superpower-US1-15.html
the dollar may continue higher for a while but I see no way it can retain reserve currency status.
Outstanding Bill – well laid out lines of thought and I agree completely. It’s a fact TPTB want to take U.S. to war – Else why would 300/400 or more field grade officers colonels and generals been fired by potus? I have heard there are some booted high ranks with plans to not go down that road ie. war. TPTB will plunder U.S. and cast U.S. aside like an old whore when they’re done – If they get their way. I pray American’s will awaken in time to rise up against these devils and have a neck tying party for them – After they had their day in court of course. All the best Bill
thank you Richard.
Bill, a rising gold price & USD is evidence of a broken system. I think we’ll see equtites, gold & USD all go up simultaneously until the two of the three don’t. Truely historic times indeed, exciting, scary all wrapped into one. Hope to see you on the other side brother. Godspeed.
look forward to meeting you!
A wise man once said: “Hot air makes poor collateral.” and “Armies are just big repo men.”
both true.
Most of the people I know, while not particularly plugged in, are aware that *something* is not right. They like the low gas pump prices but never connected higher prices with higher oil field employment with concomitant employment in the oil support industries. It is not until their own jobs are threatened by the lower oil prices that the realization sinks in.
If it weren’t so tragic, I would say it’s entertaining to watch as they struggle against their alphabet channel programming and try to remove their sheeple skin. Sadly, not a single one that I know, yet, has embraced the ideology of PMs as money.
I fear a great many people will perish from this ignorance. My latest research points to a 90% U.S. population removal rate in the first year after teotwawki. My fondest hope is that I have my head too far down the rabbit hole…
the suffering will be staggering.
Another good piece, Bill. And another lame attempt today to smash down the paper prices.
thanks Matt.
The only thing they do not control is long term federal bonds which are bought even more they wish.
Otherwise, western TPTB are still in total control especially gold and silver and it seems the chinese has been happy with that for décades and it can lost many more years.
Russia and China are acting with baby steps while the western cabal is making a war each quarter.
LOT’S of baby steps as you call them.
Anyone else watching gold and silver prices today.
With gold /silver prices diving today do you think that they fear the possibility that with contracts being up tomorrow that there will be a run on taking possesion of the real deal?
Could tomorrow be “cash in our chips” day.
open interest collapsed 56.000 contracts. In all probability not tomorrow.
Greece situation much more important than many realize.
The developments of the last few days have continued to position the ducks in line.
How much longer before we see a bank holiday or a reprograming of ATMs in order to limit the amount of cash we can get to….
https://www.youtube.com/watch?v=uQikwPYvl44
the hilarious thing is Greece is now in a position to register NATO veto power on behalf of Russia!
I have seen more mature 8th grade break ups then the oligarchs exiting stage left out of Greece. Im actually embarrassed for them.
http://www.zerohedge.com/news/2015-01-28/new-greek-government-arrives-its-residence-finds-no-power-no-wifi-password-and-no-to
next dew weeks should be interesting to watch the “tit for tat” action.
http://www.zerohedge.com/news/2015-01-29/putins-unexpected-victory-germany-furious-greece-now-russian-sanctions-veto
thanks for the link.
your welcome Bill.
Here is another interesting development.
http://thebricspost.com/china-russia-india-fms-to-meet-in-beijing-on-monday/#.VMqkYGjF-LE
Gee, do you think China and Russia may be offering a better deal to the Indians than Obama did?
Looks like Yellen agrees with you on rate increases, however she only speaks among friends. http://www.zerohedge.com/news/2015-01-29/janet-yellen-now-advises-democrats-what-feds-monetary-policy-plans-are
guess I’m out of that loop?
There is no doubt now..
World debt is somewhere around 300 trillion.
Economies are in trouble.
Currencies are in trouble.
The Elites will emerge the chaos with wealth and peoples lives will be destroyed.
The world will emerge the chaos eventually with a new monetary system and unless you have some physical you will be out in the cold.
Central Banks as we know them will all be gone.
Trust history to tell you what survives.
Gold will be the most valuable thing on the planet.
Like I said to my wife this morning.
When you have someone of the caliber of Eric Sprott telling you to pay attention you had better make time to listen.
http://kingworldnews.com/billionaire-eric-sprott-entities-wiped-overnight-western-central-banks-near-total-surrender/
Bill, I posted this for Andy; but posting here as well. I want as many eyes as possible to see it. It validates everything that we’re not crazy conspiracy kooks, and that the game is up.
=====================
Super-rich mutual fund owners (I’m not talking about piddly mutual fund managers, but rather the bankster cabal that own the freaking things) start preparing for doomsday, storing foods and ammunition.
What is they know that the sheep don’t? The derivative exposure is out of control and super-leveraged? There is no collateral left? The Bolsheviks are coming or how about a World War?
This is not some conspiracy gobbledee-gook, it’s from an as mainstream source as you can think of originating in Davos.
http://www.news.com.au/finance/money/the-super-rich-are-planning-their-escape-in-case-of-an-uprising/story-e6frfmci-1227199777221
Also see related link with more on this here:
http://www.theguardian.com/public-leaders-network/2015/jan/23/nervous-super-rich-planning-escapes-davos-2015
WOW! excellent find! This tells you the end game is upon us!
Donald Trump said “when you owe the bank a million dollars you got a problem, but when you owe the bank $100million then the bank has a problem. If Greece defaults, then the entire EU has a problem.
no Marco, THE WORLD has a problem!
Insightful as always. Thanks
I am holding to Thanksgiving most likely, but maybe Christmas 2015 for the timing the East will collapse the USD.
thanks for your input.
Great article, the Biblre do prophesy a great tribulation, an economic collapse would definitely part of it.
Regards,
Daniel
I am a believer.
Uncommon common sense tells me that the $AUD is a proxy for gold.
A quick check of the $aud weekly chart will show that it is heading down just like gold?
Maybe.. gold is looking promising.
But that is all.
This will drag on a while yet.
Silver is still in a solid downtrend.
Commonsense tells me to stay on the sidelines.
Good things come to those who wait 🙂
PS things can change rapidly and I can step in and buy as much gold as I want, anytime I want and a lot more than I could have obtained had i not looked at very simple charts showing obvious downtrends of both PM’s
Oh and by the way…it is common knowledge and common sense to not bet against the trend. SS 30th Jan 2015
yes Smurfer, “uncommon” you are.
This is one time in ones life that bucking the trend is likely the smartest thing to do.
The situations facing the world today from so many fronts are critical.
Whether you can afford a bus ticket, a train ticket or a plane ticket you had better get on board the gold and silver stacking route while you still can.
The ability to buy PMs will be gone overnight.
Do not be greedy.. Be wise and proceed with care and caution.
good advice to the silversmurfers of the world.
Be wise and cautious indeed Mike.
Silver is very much in a solid downtrend.
People fight this trend at their demise by thinking the bottom is surely in, and they will make a lot of dollars
Maybe it has bottomed, but I simply do not know and would not gamble at this point.
I am out of bars and only own Junk and proof coins.
Do not be surprised if Silver goes to $10— OR LESS.
As for Gold, I own some since the $300’s and up. Hopefully I never have to need it and can pass it on to my children.
Overall I like gold, people should own an amount that suits them. I have talked about buying the stuff for cheaper and that there is no shortage of gold EVER (fact).
It ain’t too difficult to time this on monthly charts.
Its been going down for 2 years!
My main signal is an end of month close with the 5month MA crossing the 20 M Ma.
I also use Sto and Macd.
That isn’t happening. No harm in waiting as far as I am concerned but if people want to buy now i do not have a problem with that.
Go for it, I wish everyone the best.( Including Bill )
fiction.
It looks like the casino owners are up to their same tired old tricks again. Time to bring in the COOLER!
http://www.zerohedge.com/news/2015-01-29/cme-hikes-silver-margins-11?page=1
“CME Hikes Silver Margins By 11%”
…and take a gander at the volume bars in silver.
http://www.cmegroup.com/trading/metals/precious/silver_quotes_volume_voi.html?optid=458
Note how volume was decreasing over the previous several days (no threatening rise in OI/speculation), until the CME made their needless announcement which enormous volume that same day. The price was already falling, not rising, so why did they do this? Is an $18 handle too much for these criminals at this point, is this just sheer desperation on their part or pure insatiable greed? Or both?
Am I reading this right or am I way off here, Bill?
I believe they want to try and flush out the specs again.
Dear Bill,
Your work is precious. You are one of the top, as J.Sinclair and E.Sprot and no one else!
I have just listened to new finance minister of Greece. And he talks like he is appointed by western banks and politics to just change a little (as obviously situation is un manageable now).
Take care, A.
Thank you Al, there is no higher compliment than to be included with Mr. Sinclair and Mr. Sprott!
I too see these three men as the best.
I follow everything these men say with great interest and I respect all three for their views.
I have communicated directly with all of them and have full confidence that they are as they appear.
PS. I would also add Andy to the list.
Frankly, I am in awe of these gentlemen.
I hope that someday I get to meet each one of them and get the opportunity to shake their hand and say THANK YOU.
thanks Mike.
And here is a link:
https://www.youtube.com/watch?x-yt-ts=1422503916&x-yt-cl=85027636&v=PbxZB6HYY8k
Have been buying Au and Ag for two years and turning it up. Firing volley after volley.
Keep on stacking!
It is sad that so many are convinced that they must keep their monies invested in the equity casino.
As I see it. It is more likely that people do not realize the following. Those trying to convince us that we must buy equities are likely going to short the market and make a killing when this equity market crashes.
Their is way too much risk for the potential reward in most equities now.imho
Be wise. Call Miles Franklin or someone else that is worthy of your business and start stacking.
yes, thanks Mike.
MSM to the sheeple; Everythings just super!
Carry on partying like it was 1999!
No need to worry. Just listen to us.
Unfortunately, the majority don’t have a clue about whats to hit them between the eyes. Then look for the surprised and amazed expressions of dismay! Along with the cries of; “we didn’t see it coming”!
Time is short and growing ever shorter by the day. The global financial wind storm is growing in intensity and is coming this way. This house built of fiat paper will be blown away and along with it all paper assets, based on the greatest Ponzi scheme the world has ever known.
Those that KNOW have prepared. Now, the super rich are buying their “bolt holes”. Large, remote, self contained farms with an airstrip and harbor, or with both. They are setting up to “Get out of Dodge” at a moments notice. You should seriously take note too! Got gold?
the super rich are bugging out!
Although normally I do not buy prepared foods, (make almost everything from scratch) today I made two trips to Walmart to stock up on canned goods with a 2 to 3 year shelf life.
Chili and beans anyone…..
Yup..some preparing to get out of Dodge before the next gunfight at the OK Coral.
I have a friend who spends the winter in DR. He tells me that a number of compounds have been built there the last few years. DR, NZ and Australia seem to be the desired locals by the elites preparing.
Although my comment about the OK Coral may seem amusing there really is nothing funny about what could be in store for us in the near future.