As we move through the final trading days in the first month of 2018, the US dollar plunge has accelerated as gold and silver prices power higher, but this is what has everyone worried.
US Dollar Plunge Accelerates
By Peter Boockvar, author of the Boock Report
January 24 (King World News) – Here is what Peter Boockvar wrote as the world awaits the next round of monetary madness: “The US dollar index is getting slammed again, breaking below the 90 level for the first time since December 2014…
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Boockvar continues: “Again, we know it’s a benefit to those US multinationals that don’t hedge out their FX exposure but the big negative wild card is how much more inflation do we now import, what it means for retail prices and margins and thus interest rates and Fed policy. We import about $45-50b more than we export each month. Remember, we are a consumer based economy that is now seeing an acceleration in the loss of purchasing power. Also, foreigners own more US assets than we own of theirs, particularly US Treasuries.
US Treasury Secretary Comments On Dollar Decline
Here is what our Treasury Secretary said that precipitated this latest move lower, “Obviously a weaker dollar is good for us as it relates to trade and opportunities.” He then went on to contradict himself by saying “longer term, the strength of the dollar is a reflection of the strength of the US economy.” James Baker is the last Treasury Secretary that I can remember that vocally wanted a weaker dollar, in October 1987.
If one year ago a European buyer of a US 10 yr wanted some yield pick up and didn’t hedge their FX exposure, they picked up a yield of about 2.45% vs .40% in bunds and have now lost principal and also 15% in FX.
In response to the dollar weakness, gold is breaking out above $1350, the highest since September. I remain positive.
This Has Everyone Worried
Even the Swedish Krona is moving higher after the Riksbank said they are ready to start raising rates before the ECB according to their Deputy Governor. Sweden in itself is certainly irrelevant for the global economy but what it means is we are on the cusp of setting on a path of exiting negative interest rate policy. There is a lot of money to be lost in European bonds as this process gets underway. European bonds are down across the board and it’s lifting US yields higher after yesterday’s drop.”
King World News note: It is also very important to note the continued surge in crude oil prices, which have now pushed above $65 a barrel. This will continue to feed into the higher inflation we are seeing begin to ramp up. This is also extremely bullish for gold and silver prices medium- to long-term.
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