In a post from January 2015, my belief was gold would continue to perform well against the the big currencies, but the S would temper the gains: “….We’re getting closer to that time and now people need to be watching the out performance of gold vs. all the Components of the USD index. This is important going forward as I remain very bullish on the Dollar.” And over the last two years, gold performed well against the basket except the $, and the Yen, somewhat. Those two are both a problem, the Yen’s positive and the $’s negative correlation, but that will change. This fine website is a good place to follow these various relationships. The Yen is still correlated well with gold, but “The Times They Are a-Changin”. In the longer term, gold will generally have a negative correlation with the crappy paper currencies.
So now a couple of years later, and it’s mainly about the $, and several posts last Fall were about a slow change coming – from a November post: “….A strong $ will keep a lid on gold advances, but that lid will loosen next year. It’s the main reason why for years my mantra has been to have patience with gold. It’s when the real banking troubles start to broaden (likely next year), when the $ and gold will rally together.” A few on Wall Street are catching on. Wall Street is generally two years behind in recognizing any major trend changes, especially when it comes to the resource sector, but there are a few bright bulbs in the crowd. Peter Boockvar has an interview on King World News today: “This week was actually an interesting performance for gold in that you had a couple of days where the dollar had pretty good rallies and gold was up also. And you just have to ask yourself now whether this is a change in dynamic? Everyone is trained to think that gold goes down when the dollar rallies and vice versa. But maybe gold is going to be treated (as its own currency) vs other fiat currencies, regardless of whether it’s the dollar or some other fiat currency…” All gold needs is one major currency to be in trouble, not necessarily the $. And right now it’s the Euro which is in trouble. The current relationship between gold and the $ will ebb and flow. But it’s the Euroland political problems, and the insanity of Professor Mario Draghi, PhD with his negative interest rates (he probably got the brilliant idea from Larry Summers), which will really help gold.
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