The Truth About the Dollar’s Destruction

Posted On Sep 28, 2016 By Dave Gonigam

  • The terrible disservice we’ve done readers with gold
  • Gold goes nowhere for three months, down today — now what?
  • If the Fed raises rates in December, is that the end for gold?
  • Milestone on the road to a cancer cure: a follow-up two years later
  • California enacts censorship to protect aging actors
  • Why your editor is in the tank for Putin

“Interesting how Jim Rickards keeps preaching the dollar is under attack and is going to be destroyed,” a reader writes — clearly teeing up a caustic remark or two…

“Strange how the dollar keeps going up and gold going down. Where is the attack? The dollar has been up since late 2014, and if the Fed raises rates, it will stay up. Am I missing something?

“If the Fed gets aggressive on rates, gold is not going to be a good play anytime soon, with what I am seeing in the data.

“A response would be appreciated before your readers lose more money in gold and precious metals.”

Yes, we feel just awful about all the money our subscribers have lost in gold this year…

The Horror

And while it’s true the dollar went on a tear starting in mid-2014 — relative to other major currencies, we hasten to add — it looks as if the top’s been in since January…

Year of te Weakening Dollar

Now, it’s true that both of these big moves taken a breather the last three months, ever since the tumult caused by the “Brexit” referendum in Great Britain. And it’s also true that gold has climbed down from $1,340 to $1,320 in the last 48 hours. So let’s examine the state of play here in late September 2016…

“It goes without saying that gold is volatile and any given week can witness a pullback as well as a rally,” says Jim Rickards.

“The key for investors is to stay focused on the medium-to-long-term drivers of gold and not to become too depressed or too euphoric with the short-term blips.”

Jim sees three of those drivers, all courtesy of the Federal Reserve…

  • A generally “dovish” stance
  • A push for more inflation
  • A push for negative real interest rates.

“From time to time, Fed officials come out publicly and ‘talk tough’ about raising interest rates. Markets react in a highly predictable fashion with the dollar up and stocks, bonds and gold all down. But the tough talk is just that — talk.”

The talk lasts just long enough to put a lid on the stock market and keep it from getting too bubble-liscious. But all the while, easy-money policies remain in place, in hopes of keeping the economy from falling into a recessionary abyss.

All that said, “It’s too early to say what will happen in December,” Jim avers. The Fed might well raise rates then, based on a variety of variables, including the election.

But even if the Fed raises in December, is that the death knell for gold? That appears to be the core of the reader’s inquiry.

Jim tells us he spotted a headline a few days ago that stopped him in his tracks: “Gold Down on Hints of Inflation.”

Given that gold functions as an inflation hedge, what gives?

“Here’s the logic,” says Jim, “as best I can make sense of it. Any hint of inflation might give the Fed a green light to raise rates. That’s supposed to be bad for gold. Some people say gold has ‘no yield,’ and, by definition, higher interest rates give investors some yield. Supposedly, if the Fed raises rates, investors will sell gold and buy Treasury notes for yield. Therefore, gold goes down.”

So what’s wrong with this logic? “Just about everything,” says Jim.

“The Fed will not raise rates for the fun of it. The Fed wants to keep inflation under control, but what the organization really wants is negative real rates. That’s where inflation is higher than nominal rates. It does the Fed no good to raise rates unless inflation is going up even faster. Yet that’s exactly when gold does its job of preserving wealth.

“The other problem with market logic is that it will take more than a ‘hint’ of inflation to get the Fed to move. The Fed wants to see higher inflation on a sustained basis, not just from one report. The Fed also wants to ensure that it doesn’t kill inflation as soon as it appears.”

One more thought — and you might want to refer to those charts above: Gold hit bottom at the end of last year barely two weeks after the Fed pulled the trigger on its only interest rate increase since the Panic of 2008.

If the Fed does one more halting, tentative increase in December — and that’s the most maneuvering room the Fed has — it likely won’t matter a whit as far as the gold price.

[Ed. note: On the decades-long trajectory of the U.S. dollar’s decline, Friday will mark a milestone.

That’s the day the SDR — the “world money” issued to governments and central banks by the International Monetary Fund — will begin to include the Chinese yuan in its composition, along with dollars, euros, pounds and yen. The mainstream is only beginning to understand the implications — more about that here in The 5 tomorrow — but Jim’s been on the case ever since these plans were announced.

No, the world won’t end on Friday. But your world will be changed forever. Will you be ready? Jim helps you get started when you click here.]

The major U.S. stock indexes look flat as we check our screens this morning. The Dow and the S&P 500 are both off fractionally.

Treasury rates keep climbing down, the 10-year now 1.55%. As noted above, gold sits at $1,320. Crude is stabilizing at $44.83.

The only economic number of note today is durable-goods orders — flat in August. Year over year, it works out to 1.3% decrease. Elsewhere, we see an inordinate amount of speculation about whether Deutsche Bank will seek a rescue from the German government; right now it’s all noise, no signal, and thus nothing has changed since we last talked about it on Monday.

Science just reached a milestone on the way to a cancer cure — a profitable milestone for some of our readers.

In October 2014, Stephen Petranek tipped us off to a company “developing a technology that can take the T cells in your body, those killer cells in your immune system, and re-engineer them to find cancer cells and kill them.” It’s a new twist on the old technique of “immunotherapy.” If it works, it’s a huge step toward curing cancer and not just treating it.

On Monday, Stephen urged readers to sell and book a gain of better than 75% ahead of results from a trial involving lymphoma patients. “If results are negative, we’ll see shares fall at least 50%, perhaps far more.”

After the close on Monday, the results came out and were positive. The share price on Kite Pharma (KITE) popped only modestly yesterday, and it’s pulled back nearly 6% as we write today.

“The market is saying what I’m thinking,” says Stephen: “that there are a lot of uncertainties and unknowns ahead… One of the big questions that remains with therapies like these is whether remissions will last. Numbers in immunotherapy trials so far suggest that at best, about a third of patients treated may remain cancer-free for a considerable time. But no one really knows yet.”

No doubt there’s been a breakthrough… but it’s a challenging road ahead.

Regulators gone wild, California edition: Gov. Jerry Brown has signed a bill censoring the publication of truthful information online.

Perhaps you’ve consulted IMDb — the Internet Movie Database — to look up a film or an actor or a director. Among the interesting things you can find there is when someone was born.

That will be harder with the passage of AB-1687. Actors can now ask IMDb or similar sites to delete birth dates and ages, on the theory that some people who consult the site might be potential employers in Hollywood, who then might perform acts of age discrimination.

For real.

No word yet on whether IMDb or anyone else will challenge the measure in court. Among its advocates was Gabrielle Carteris, “known to Gen Xers as Andrea Zuckerman from Beverly Hills 90210,” writes Scott Shackford at Reason. “She claims that the never would have gotten her role playing a teenager had people known she was actually 29 years old, which just goes to show she clearly never watched an episode of Glee.”

Heh… We’ve never watched either show and we thought that line was pithy enough to share…

“Dave, curious to know why you are a Russophile,” says an inevitable entry in our mailbag after our musings of recent days. “Are you or your ancestry from Russia, or are you married to a Russian lass?

“Was it the fairies or the Chinese who annexed Crimea or are supporting/invading the Donbass in Ukraine?

“The Russian/Ukraine conflict has gone on a long, long time, from Catherine the Great to Stalin, the Terror-Famine, the gulags, the Great Purge, the Molotov-Ribbentrop Pact, etc. — you know, all the ‘good’ stuff that makes for good relations with your neighbor.

“Come on, lad, you’re better that this — more context, less tabloid. Keep up the good work.”

The 5: Your editor is not a Russophile, nor am I of Russian extraction. Nor is my wife. Further, I have never visited Russia, nor do I own any Russian stocks outside a mutual fund.

But in the interest of full disclosure… I have an immense aversion to being vaporized in a nuclear war.

Given the massive arsenals on hair triggers still possessed by Washington and Moscow, U.S.-Russia relations are the paramount issue; the markets and the economy become rather secondary matters if the Earth is pockmarked with smoldering radioactive craters.

To your point: Yes, there’s a long and sordid history involving Russia and Ukraine. Exactly what the American interest is in that history, no one has adequately explained to the American people.

But — and here’s some “context” for you — that didn’t stop American officials from acting in our name and on our dime to engineer a coup in Ukraine against a democratically elected, albeit unsavory, government in early 2014. Now a new set of crooks is in charge, backed by Washington, but with a bunch of neo-Nazis lurking in the background.

Why any of that is worth antagonizing the Russians over, no one has told the American people.

But the coup was of a piece with U.S. policy for a quarter-century now. We could have had a clean start after the collapse of the Soviet Union. But institutions, once in existence, want to stay in existence… and NATO wasn’t about to close up shop, as it should have. Indeed, powerful elites like Lockheed executive Bruce Jackson formed the “Committee to Expand NATO,” the better to open up new markets for Lockheed product.

First NATO swallowed up the former Warsaw Pact states… and then the Baltic countries on Russia’s doorstep. In recent weeks, NATO has begun installing artillery there, within striking distance of St. Petersburg. This internet meme is now out of date…

Description: russia-wants-war.jpg

Now, there’s some “context” for the drumbeat in Western media about “Russian aggression”…

Best regards,

Dave Gonigam
The 5 Min. Forecast

P.S. Of course, Vladimir Putin will act in what he considers his nation’s own interest. Which is why he’s on the verge of launching what Jim Rickards calls a “sneak attack” on the U.S. dollar.

It’s not an anti-American thing, just business… and it would have a major impact on your pocketbook and portfolio alike.

As we’ve mentioned in recent days, Jim’s called a “Dollar Defense Summit” — a live online briefing in which he’ll lay out the forces at work and how they could open the door to gains of 400% or better.

This is your final reminder — because the event is tonight at 7:00 p.m. EDT. Access is FREE, and a replay will be available later if you can’t make it tonight. Just submit your email address at this link and you’re in.