Sive Morten
Special Consultant to the FPA
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Fundamentals
Yesterday we've discussed a lot of interesting stuff on the markets, explaining performance of the stock market, why Fed can't succeed in its struggle against inflation and what scenario most probably should happen. On a gold market it is also a lot of interesting things to discuss, especially the political shifts that now is getting more pace in the US. It more and more calls for Biden impeachment, especially on far-right media, such as Tucker Carlson Fox news show. He accuses Biden with burning the US national oil&gas reserves and sending them to EU. And I understand Mr. Carlson very well. Few weeks ago we've provided detailed explanation on Gas sector in the US. And here is the reason for that - just compare gas prices in EU and in the US:
Anyway, as you know, the far-right political forces closer to Republicans and de facto are inheritors of "South" side, if we speak on the US civil war terms, as D. Trump does, by the way. They are the old aristocracy, followers of classic values, such as family, Catholic Christian faith etc. Thus, the recent Supreme Court decision on abortion is not an occasional decision. Republicans go on the offensive. The domestic political struggle is spinning up and it seems that the more radical events are coming. Our suggestion that Republicans win the November elections and then will wait for either impeachment or 2024 elections are too conservative.
Here is what's going now. D. Trump takes a lot of speeches and meetings across the country and clearly hints on fast return:
And now we start to understand the Republicans plan. Once Texas has announced "T-Exit" procedure in 2023 - take a look on who is initiator and what else they proclaim. Texas Republicans push for a referendum to vote on the state seceding from the U.S. in 2023 at meeting that declared Biden's win illegitimate. So, they challenge the Biden's win again, precisely the same what D. Trump was trying to do. But this is not the end of program, guys, here is what Texas has in its program:
So, here it is becoming clear the D. Trump plan. He intends to contest results of elections in three States and return this claim, i.e. 2020 elections results back to Congressional review. And it seems that our suggestion is correct - Christina Bobb on D. Trump strategy
Additionally the recent E. Musk/Tweeter scandal is not the occasion. It seems that he was needed to get some private information that in some way is related to elections or J. Biden personally and he can't get it in any other way but to initiate of big deal. Once he has got the access to it - he has cancelled the takeover. Now they initiate the legal claim of J. Biden investments in Tweeter, which has relation to different legal claims and elections falsifications. Jack Pozo reported that Elon had acquired evidence of criminal activity and that Twitter had been "exposed"! Later D. Trump wrote - "wait until liberals find out that their favorite president invested in Twitter as an investor". And yesterday there was news that Twitter Board pursue the legal action.
Sorry, guys for this political off-topic, but this is vitally important for the gold market as well. We see that political struggle inside the US is accelerating that should contract the time of our expectation. The power transfer period, especially involving the legal claims and courts decisions leads to instability and diarchy. This is another bad factor when your country is struggling crisis of all times. So, it seems that reversal on gold could happen earlier than we think... THe only thing that I'm really worry about, on a background of this political mess - as Democrats are losing everything, hopefully they won't play va-bank and hit the red button.
Market overview
A better-than-expected U.S. jobs report eased some worries about an imminent recession but also bolstered the case for the Federal Reserve to continue aggressively hiking rates, threatening more turbulence for asset prices this year. Hopes that a weakening economy could push the Fed to slow or stop its rate hikes earlier than previously expected have bolstered stocks and bonds in recent days. The S&P 500 rebounded 6% from its June lows while the 10-year U.S. Treasury yield, which moves inversely to prices, hit a low of 2.75% this week.
That view took a hit on Friday, as traders bet on bigger Fed rate hikes after the report, which showed U.S. employers hiring far more workers than expected in June. Rate futures contracts now reflect a base-case view that the Fed's policy rate will be in the 3.5%-3.75% range by year end, higher than Fed policymakers themselves predicted three weeks ago.
Investors now turn to the monthly U.S. consumer price index report for a gauge on inflation, due next week, as well as to the start of a second-quarter earnings season that investors fear will come in weaker than forecast. Data on Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly rose last week, while another report last week showed U.S. manufacturing activity slowed more than expected in June.
Gold extended its selloff to an over nine-month low on Wednesday hurt by a stronger dollar, while the Federal Reserve's June meeting minutes established a more "restrictive" monetary policy. The Fed minutes saw participants justifying the 0.75-percentage-point increase and a likely increase of 50 or 75 basis points at its meeting later this month.
Global manufacturing activity and freight movements have begun to decelerate as the major economies buckle under the combined impact of inflation, lockdowns, sanctions and rising interest rates. Worldwide industrial production in the three months between February and April was just 3.75% higher than in the corresponding period a year earlier, according to the Netherlands Bureau of Economic Policy Analysis (CPB).
Purchasing managers’ surveys for the United States, the euro zone and China all show the expansion of business activity losing momentum, or in China’s actually falling, in the second quarter. Freight movements appear to have peaked even earlier, around December, and have been trending lower since the start of the year. Global trade volumes were 3.76% higher in February-April compared with the same period a year earlier, a relatively slow rate of growth. But the most recent data shows volumes were down 0.3% in February-April compared with November-January, even after seasonal adjustments. On this measure, volume growth is in only the 10th percentile for all periods since 1991, implying a significant slowdown is already underway.
South Korea’s KOSPI-100 equity index contains a large number of export-oriented manufacturing businesses and has been closely correlated with the trade cycle over the last two decades. The KOSPI-100 has continued to fall in recent months and is now down 30% compared with the same period last year, indicating the trade volumes have likely fallen further in May and June.
Gold edged lower as the dollar strengthened on bets the deteriorating growth outlook for the euro area will lead to slower monetary tightening there than in the US.
Prices have formed a so-called death cross pattern -- when the 50-day moving average drops below its 200-day counterpart -- which is a bearish signal for some traders.
Gold global role is changing
The few events of past week could be unsigned, but they have exceptional meaning. First is a legal claim on former JP Morgan gold traders. The precious-metals business at JPMorgan Chase & Co. operated for years as a corrupt group of traders and sales staff who manipulated gold and silver markets for the benefit of the bank and its prized clients, a federal prosecutor told jurors in Chicago.
The trial of three former JPMorgan employees, including the veteran head of precious metals, Michael Nowak, is the most ambitious effort yet in a years long US crackdown on market manipulation and spoofing. Unlike past cases of alleged trading fraud, the trio is accused of a racketeering conspiracy under the 1970 Racketeer Influenced and Corrupt Organizations Act -- a criminal law more commonly used against the Mafia rather than global banks.
The gold market is very thin, guys. The annual market depth is around 170-200 Bln dollars, which is nothing to cover for few central banks, accompanied by primary dealers, such as JP Morgan. Total open interest on COMEX is around 640 K contracts which is approximately $115 Bln - very small sum by current times. Have you ever thought why every other commodities are going higher while Gold stands flat? This is because the price manipulation by Central Banks and their agents, big commercial banks, such as JPM, G.Sachs and others across the Globe. They are called to support "trust" in global financial system and they succeed, because gold market is very thin. This is the same way how Fed manipulates TIPS via primary dealers or directly. By controlling TIPS prices (Treasury inflation protected bonds) they control inflationary expectations. This case, guys, also could have political background, as Democrats' power mostly is supported by bankers.
Many people start to understand that US Dollar power is coming to an end and it is might be the swan song. Here is Article from Canada:
First, and as a reaction to the crippling sanctions and its exclusion from the global SWIFT money transfer system imposed by the West, Russia moved quickly to protect the ruble by raising interest rates to 20 per cent (subsequently lowered to 11 per cent) and imposing capital controls. Then it demanded that all “non-friendlies” (the West) could only use rubles or gold to buy its much-coveted oil. Russia, which has spent the better part of the last decade getting rid of its U.S. dollars and increasing its gold reserves, also offered to buy gold (mostly from its captive gold-mining sector) at the rate of 5,000 rubles per gram. Russian President Vladimir Putin is advocating that BRICS economies look into creating an international reserve currency using the basket of their own currencies. Finally, he started making noises about creating a gold-backed ruble. Why is there any significance to these moves?
The writing is on the wall that some form of change is imminent, and a global monetary system reset may already be underway. According to Credit Suisse, this new economic order will revolve around commodity-based currencies. These commodity-based currencies will further weaken the Eurodollar system, which will be much weaker after the war between Russia and Ukraine ends.
How all these things evolve, and their timing, are beyond anyone’s forecasting abilities, but something will eventually replace the U.S. dollar as the sole dominant global reserve currency, perhaps sooner than anyone expects. I expect (author writes), at the very least, an “alternative trading” currency to emerge and compete with the dollar. This new currency would be used solely for settling trades between nations as opposed to a reserve currency that central banks normally use for diversification. Admittedly, this is sheer speculation and the eventual outcome is anyone’s guess
How would a gold-backed settlement currency work? As economist Jim Rickards explained it to me recently, a currency doesn’t have to be fully backed by gold. When the British pound was backed by gold a century ago, its M0 money supply (the currency in circulation and money being kept in banks in reserves) was backed to the tune of only 20 per cent gold. And although the U.S. always kept its gold backing of the dollar at 1:1 during the 1930s, it legally had the ability to go down to a 40 per cent coverage. With China’s M0 money supply around $1.4 trillion (9 trillion yuan), and assuming a 40 per cent gold backing, it would indicate a need for $560 billion worth of gold which is approximately the same amount of gold the U.S. holds in its official reserves at 8,200 tons. (And Russia already has ~40-50% M0 coverage by gold. Its M0 stands for ~$210 Bln, while gold reserves around 2300 tonnes, which equals to $135 Bln. National debt is just 18-20% of GDP).
To have a gold-backed currency trading system, you only need two countries using the system initially. Given China’s tacit support for Russia over Ukraine, its need for Russian oil and other commodities, it is not inconceivable that it might have found its dance partner. The two countries could create a settlement trading currency (different than a reserve currency) outside the U.S. dollar system. They could agree to trade on a “net settlement“ basis, meaning they would settle their trade on a periodic basis, say every quarter. Recently, an analyst from Russian bank VEB.RF suggested that Russia should create a gold-backed stablecoin under the working title “golden ruble.” According to their research, Western countries will have no opportunity to block settlement operations carried out in such a currency, since its exchange rate would be pegged to the gold rate on the world market, not to the dollar, the euro or, for that matter, the fiat ruble itself.
This approach would require a lot less gold. And of course, the currencies could be backed by a basket of commodities — it doesn’t have to be gold. It’s just that gold is the only metal held almost universally by central banks. It must be something tangible, which is why I don’t include bitcoin, which China has already banned and didn’t provide Russia any tangible escape route to avoid sanctions.
While Americans have been binging on digital currencies, global central banks have been on a gold-buying spree. They started in 2010 and they are still buying while at the same time reducing their U.S. dollar reserves, which are now down to 59 per cent of total reserves from 71 per cent in 2000. Physical gold is moving from west to east. At the same time, there are signs the Petrodollar system is cracking. Saudi Arabia is making noises about selling oil to China in yuan and is squarely siding with Russia over OPEC oil supplies, despite pleading from the Biden administration to increase production.
In the end, market forces might dramatically reduce the number of U.S. dollars needed and its value would decline accordingly. Of course, the U.S. could go back to some type of gold standard, but even at a 20 per cent gold backing of its M0 money supply, gold would have to be revalued to $7,500 an ounce.
That might sound outlandish but recall that in 1933 the U.S. mandated citizens to sell their gold to government at $20.67 an ounce only to turn around and immediately revalue gold at $35. They robbed their citizens to effectively devalue the dollar by 70 per cent.
That kind of move would be a difficult pill to swallow for Americans, and for politicians, given a gold standard would impose a discipline they haven’t been accustomed to over the past 50 years and it would also mean accepting a lower standard of living for a while. That said, it may have its hand forced if a large part of the world population goes in the direction of a gold-backed currency. Whatever happens, let’s hope it’s a peaceful transition. Because that would be a hell of a lot more appealing than the violent transitions we have witnessed throughout the centuries.
When Gold finally starts rising?
Above we said that moment seems to be closer than we thought initially. Although currently everybody busy with Dollar rally and "Dollar is da King" trading scenario, but it seems that most active stage of dollar appreciation is coming to an end. Hedge funds are cautious already on its performance, contracting long positions.
Indeed, funds scaling back their bullish bets on the dollar may be simply taking profit, clearing the decks, and preparing to build the net long position up again, which would probably help push the currency to retest June's 20-year high. U.S. futures market data show that the hedge funds reduced their net long dollar position against other G10 currencies by $2 billion to $14 billion in the week to June 28. It was the first decline in three weeks.
Of course, it is extended process and can't turn in a blink of an eye but changes could accelerate with the more evident signs. UBS Bank confirms our view that gold will rise but we need to wait a bit more. Here is what they say:
When Fed turns to watch over growth instead of inflation - we've explained yesterday in our FX Report. It might happen as soon as early fall. The same UBS talks about the US Dollar - it's power is temporal:
Which also would be supportive to the gold market. The question is what the reasons for dollar weakness will be. We suggest exceptional reasons - deep US political and economical crisis.
To be continued
Yesterday we've discussed a lot of interesting stuff on the markets, explaining performance of the stock market, why Fed can't succeed in its struggle against inflation and what scenario most probably should happen. On a gold market it is also a lot of interesting things to discuss, especially the political shifts that now is getting more pace in the US. It more and more calls for Biden impeachment, especially on far-right media, such as Tucker Carlson Fox news show. He accuses Biden with burning the US national oil&gas reserves and sending them to EU. And I understand Mr. Carlson very well. Few weeks ago we've provided detailed explanation on Gas sector in the US. And here is the reason for that - just compare gas prices in EU and in the US:
Anyway, as you know, the far-right political forces closer to Republicans and de facto are inheritors of "South" side, if we speak on the US civil war terms, as D. Trump does, by the way. They are the old aristocracy, followers of classic values, such as family, Catholic Christian faith etc. Thus, the recent Supreme Court decision on abortion is not an occasional decision. Republicans go on the offensive. The domestic political struggle is spinning up and it seems that the more radical events are coming. Our suggestion that Republicans win the November elections and then will wait for either impeachment or 2024 elections are too conservative.
Here is what's going now. D. Trump takes a lot of speeches and meetings across the country and clearly hints on fast return:
And now we start to understand the Republicans plan. Once Texas has announced "T-Exit" procedure in 2023 - take a look on who is initiator and what else they proclaim. Texas Republicans push for a referendum to vote on the state seceding from the U.S. in 2023 at meeting that declared Biden's win illegitimate. So, they challenge the Biden's win again, precisely the same what D. Trump was trying to do. But this is not the end of program, guys, here is what Texas has in its program:
- The Texas GOP also voted to ratify a resolution that declared President Joe Biden 'was not legitimately elected'
- Donald Trump comfortably won the state of Texas during the 2020 presidential election by more than 600,000 votes
- In addition to declaring homosexuality to be 'abnormal' the party also voted against 'all efforts to validate transgender identity'
So, here it is becoming clear the D. Trump plan. He intends to contest results of elections in three States and return this claim, i.e. 2020 elections results back to Congressional review. And it seems that our suggestion is correct - Christina Bobb on D. Trump strategy
Additionally the recent E. Musk/Tweeter scandal is not the occasion. It seems that he was needed to get some private information that in some way is related to elections or J. Biden personally and he can't get it in any other way but to initiate of big deal. Once he has got the access to it - he has cancelled the takeover. Now they initiate the legal claim of J. Biden investments in Tweeter, which has relation to different legal claims and elections falsifications. Jack Pozo reported that Elon had acquired evidence of criminal activity and that Twitter had been "exposed"! Later D. Trump wrote - "wait until liberals find out that their favorite president invested in Twitter as an investor". And yesterday there was news that Twitter Board pursue the legal action.
Sorry, guys for this political off-topic, but this is vitally important for the gold market as well. We see that political struggle inside the US is accelerating that should contract the time of our expectation. The power transfer period, especially involving the legal claims and courts decisions leads to instability and diarchy. This is another bad factor when your country is struggling crisis of all times. So, it seems that reversal on gold could happen earlier than we think... THe only thing that I'm really worry about, on a background of this political mess - as Democrats are losing everything, hopefully they won't play va-bank and hit the red button.
Market overview
A better-than-expected U.S. jobs report eased some worries about an imminent recession but also bolstered the case for the Federal Reserve to continue aggressively hiking rates, threatening more turbulence for asset prices this year. Hopes that a weakening economy could push the Fed to slow or stop its rate hikes earlier than previously expected have bolstered stocks and bonds in recent days. The S&P 500 rebounded 6% from its June lows while the 10-year U.S. Treasury yield, which moves inversely to prices, hit a low of 2.75% this week.
That view took a hit on Friday, as traders bet on bigger Fed rate hikes after the report, which showed U.S. employers hiring far more workers than expected in June. Rate futures contracts now reflect a base-case view that the Fed's policy rate will be in the 3.5%-3.75% range by year end, higher than Fed policymakers themselves predicted three weeks ago.
Investors now turn to the monthly U.S. consumer price index report for a gauge on inflation, due next week, as well as to the start of a second-quarter earnings season that investors fear will come in weaker than forecast. Data on Thursday showed the number of Americans filing new claims for unemployment benefits unexpectedly rose last week, while another report last week showed U.S. manufacturing activity slowed more than expected in June.
Gold extended its selloff to an over nine-month low on Wednesday hurt by a stronger dollar, while the Federal Reserve's June meeting minutes established a more "restrictive" monetary policy. The Fed minutes saw participants justifying the 0.75-percentage-point increase and a likely increase of 50 or 75 basis points at its meeting later this month.
Global manufacturing activity and freight movements have begun to decelerate as the major economies buckle under the combined impact of inflation, lockdowns, sanctions and rising interest rates. Worldwide industrial production in the three months between February and April was just 3.75% higher than in the corresponding period a year earlier, according to the Netherlands Bureau of Economic Policy Analysis (CPB).
Purchasing managers’ surveys for the United States, the euro zone and China all show the expansion of business activity losing momentum, or in China’s actually falling, in the second quarter. Freight movements appear to have peaked even earlier, around December, and have been trending lower since the start of the year. Global trade volumes were 3.76% higher in February-April compared with the same period a year earlier, a relatively slow rate of growth. But the most recent data shows volumes were down 0.3% in February-April compared with November-January, even after seasonal adjustments. On this measure, volume growth is in only the 10th percentile for all periods since 1991, implying a significant slowdown is already underway.
South Korea’s KOSPI-100 equity index contains a large number of export-oriented manufacturing businesses and has been closely correlated with the trade cycle over the last two decades. The KOSPI-100 has continued to fall in recent months and is now down 30% compared with the same period last year, indicating the trade volumes have likely fallen further in May and June.
Gold edged lower as the dollar strengthened on bets the deteriorating growth outlook for the euro area will lead to slower monetary tightening there than in the US.
Prices have formed a so-called death cross pattern -- when the 50-day moving average drops below its 200-day counterpart -- which is a bearish signal for some traders.
Gold global role is changing
The few events of past week could be unsigned, but they have exceptional meaning. First is a legal claim on former JP Morgan gold traders. The precious-metals business at JPMorgan Chase & Co. operated for years as a corrupt group of traders and sales staff who manipulated gold and silver markets for the benefit of the bank and its prized clients, a federal prosecutor told jurors in Chicago.
The trial of three former JPMorgan employees, including the veteran head of precious metals, Michael Nowak, is the most ambitious effort yet in a years long US crackdown on market manipulation and spoofing. Unlike past cases of alleged trading fraud, the trio is accused of a racketeering conspiracy under the 1970 Racketeer Influenced and Corrupt Organizations Act -- a criminal law more commonly used against the Mafia rather than global banks.
The gold market is very thin, guys. The annual market depth is around 170-200 Bln dollars, which is nothing to cover for few central banks, accompanied by primary dealers, such as JP Morgan. Total open interest on COMEX is around 640 K contracts which is approximately $115 Bln - very small sum by current times. Have you ever thought why every other commodities are going higher while Gold stands flat? This is because the price manipulation by Central Banks and their agents, big commercial banks, such as JPM, G.Sachs and others across the Globe. They are called to support "trust" in global financial system and they succeed, because gold market is very thin. This is the same way how Fed manipulates TIPS via primary dealers or directly. By controlling TIPS prices (Treasury inflation protected bonds) they control inflationary expectations. This case, guys, also could have political background, as Democrats' power mostly is supported by bankers.
Many people start to understand that US Dollar power is coming to an end and it is might be the swan song. Here is Article from Canada:
First, and as a reaction to the crippling sanctions and its exclusion from the global SWIFT money transfer system imposed by the West, Russia moved quickly to protect the ruble by raising interest rates to 20 per cent (subsequently lowered to 11 per cent) and imposing capital controls. Then it demanded that all “non-friendlies” (the West) could only use rubles or gold to buy its much-coveted oil. Russia, which has spent the better part of the last decade getting rid of its U.S. dollars and increasing its gold reserves, also offered to buy gold (mostly from its captive gold-mining sector) at the rate of 5,000 rubles per gram. Russian President Vladimir Putin is advocating that BRICS economies look into creating an international reserve currency using the basket of their own currencies. Finally, he started making noises about creating a gold-backed ruble. Why is there any significance to these moves?
The writing is on the wall that some form of change is imminent, and a global monetary system reset may already be underway. According to Credit Suisse, this new economic order will revolve around commodity-based currencies. These commodity-based currencies will further weaken the Eurodollar system, which will be much weaker after the war between Russia and Ukraine ends.
How all these things evolve, and their timing, are beyond anyone’s forecasting abilities, but something will eventually replace the U.S. dollar as the sole dominant global reserve currency, perhaps sooner than anyone expects. I expect (author writes), at the very least, an “alternative trading” currency to emerge and compete with the dollar. This new currency would be used solely for settling trades between nations as opposed to a reserve currency that central banks normally use for diversification. Admittedly, this is sheer speculation and the eventual outcome is anyone’s guess
How would a gold-backed settlement currency work? As economist Jim Rickards explained it to me recently, a currency doesn’t have to be fully backed by gold. When the British pound was backed by gold a century ago, its M0 money supply (the currency in circulation and money being kept in banks in reserves) was backed to the tune of only 20 per cent gold. And although the U.S. always kept its gold backing of the dollar at 1:1 during the 1930s, it legally had the ability to go down to a 40 per cent coverage. With China’s M0 money supply around $1.4 trillion (9 trillion yuan), and assuming a 40 per cent gold backing, it would indicate a need for $560 billion worth of gold which is approximately the same amount of gold the U.S. holds in its official reserves at 8,200 tons. (And Russia already has ~40-50% M0 coverage by gold. Its M0 stands for ~$210 Bln, while gold reserves around 2300 tonnes, which equals to $135 Bln. National debt is just 18-20% of GDP).
To have a gold-backed currency trading system, you only need two countries using the system initially. Given China’s tacit support for Russia over Ukraine, its need for Russian oil and other commodities, it is not inconceivable that it might have found its dance partner. The two countries could create a settlement trading currency (different than a reserve currency) outside the U.S. dollar system. They could agree to trade on a “net settlement“ basis, meaning they would settle their trade on a periodic basis, say every quarter. Recently, an analyst from Russian bank VEB.RF suggested that Russia should create a gold-backed stablecoin under the working title “golden ruble.” According to their research, Western countries will have no opportunity to block settlement operations carried out in such a currency, since its exchange rate would be pegged to the gold rate on the world market, not to the dollar, the euro or, for that matter, the fiat ruble itself.
This approach would require a lot less gold. And of course, the currencies could be backed by a basket of commodities — it doesn’t have to be gold. It’s just that gold is the only metal held almost universally by central banks. It must be something tangible, which is why I don’t include bitcoin, which China has already banned and didn’t provide Russia any tangible escape route to avoid sanctions.
While Americans have been binging on digital currencies, global central banks have been on a gold-buying spree. They started in 2010 and they are still buying while at the same time reducing their U.S. dollar reserves, which are now down to 59 per cent of total reserves from 71 per cent in 2000. Physical gold is moving from west to east. At the same time, there are signs the Petrodollar system is cracking. Saudi Arabia is making noises about selling oil to China in yuan and is squarely siding with Russia over OPEC oil supplies, despite pleading from the Biden administration to increase production.
In the end, market forces might dramatically reduce the number of U.S. dollars needed and its value would decline accordingly. Of course, the U.S. could go back to some type of gold standard, but even at a 20 per cent gold backing of its M0 money supply, gold would have to be revalued to $7,500 an ounce.
That might sound outlandish but recall that in 1933 the U.S. mandated citizens to sell their gold to government at $20.67 an ounce only to turn around and immediately revalue gold at $35. They robbed their citizens to effectively devalue the dollar by 70 per cent.
That kind of move would be a difficult pill to swallow for Americans, and for politicians, given a gold standard would impose a discipline they haven’t been accustomed to over the past 50 years and it would also mean accepting a lower standard of living for a while. That said, it may have its hand forced if a large part of the world population goes in the direction of a gold-backed currency. Whatever happens, let’s hope it’s a peaceful transition. Because that would be a hell of a lot more appealing than the violent transitions we have witnessed throughout the centuries.
When Gold finally starts rising?
Above we said that moment seems to be closer than we thought initially. Although currently everybody busy with Dollar rally and "Dollar is da King" trading scenario, but it seems that most active stage of dollar appreciation is coming to an end. Hedge funds are cautious already on its performance, contracting long positions.
Indeed, funds scaling back their bullish bets on the dollar may be simply taking profit, clearing the decks, and preparing to build the net long position up again, which would probably help push the currency to retest June's 20-year high. U.S. futures market data show that the hedge funds reduced their net long dollar position against other G10 currencies by $2 billion to $14 billion in the week to June 28. It was the first decline in three weeks.
Of course, it is extended process and can't turn in a blink of an eye but changes could accelerate with the more evident signs. UBS Bank confirms our view that gold will rise but we need to wait a bit more. Here is what they say:
When Fed turns to watch over growth instead of inflation - we've explained yesterday in our FX Report. It might happen as soon as early fall. The same UBS talks about the US Dollar - it's power is temporal:
Which also would be supportive to the gold market. The question is what the reasons for dollar weakness will be. We suggest exceptional reasons - deep US political and economical crisis.
To be continued
