Gold and the Davos Dollar Dunk

Posted On Jan 25, 2018 By Dave Gonigam

  • Here’s a Donald Trump-Jimmy Carter comparison you won’t like…
  • … But it’ll be great for gold
  • The Russian-Chinese long game of dollar destruction
  • The boom before the bust: CAT drives Dow to record highs
  • Another deceptively weak housing number
  • Gold gadfly to control a key post in Germany’s parliament
  • “Don’t be such an arrogant jerk” and other contributions to our mailbag

[Before we start the clock today: We had an overwhelming response to America’s First Penny Stock Summit yesterday, featuring Agora Financial’s newest big-name contributor — Tim Sykes.

Tim dispelled myth after myth about penny stocks: “Maybe you’ve lost money listening to one of the hundreds of con artists who pose as ‘penny stock gurus.’ Or maybe you heard from the clueless mainstream media that nobody makes money from penny stocks. I think our Penny Stock Summit proved it all wrong. I promise you’ve never seen anything like my penny stock strategy.”

If you missed the event, you can watch a full replay at this link.]

When Treasury Secretary Steve Mnuchin trash-talked the dollar yesterday, it was even more significant than we told you.

Reminder: “Obviously a weaker dollar is good for us as it relates to trade and opportunities,” he said at the annual power-elite party in Davos, Switzerland.

We said for the past quarter-century, Treasury secretaries at least gave lip service to a “strong dollar,” even if they didn’t mean it. It goes back to a dollar crisis in 1995 and Bill Clinton’s Treasury Secretary Robert Rubin repeatedly declaring a strong dollar “in our national interest.”

But actually saying a weak dollar is a good thing? Turns out you have to go back even further in history.

“I can’t recall any administration official not defending a strong dollar since the Carter administration,” says Jim Rickards.

Jim added pointedly, “We all know what happened then.”

Yup. The worst inflation of our lifetimes. Jimmy Carter telling us the nation suffered from “a crisis of confidence.” Worst of all, The Knack topping the charts with “My Sharona.”

It was during this dollar-dunking era of the late 1970s that gold experienced an epic run-up. From a bottom of $100 an ounce during the Ford-Carter campaign of 1976, gold doubled to $200 by early 1978… doubled again to $400 in mid-1979… and in the final mania, doubled yet again past $800 in January 1980…

When Government Embraces a Weak Dollar

It’s Jim’s considered opinion that we’re in the early stages of a similar run-up. In December 2015, Jim made a startling prediction in these digital pages: After a sickening drop from $1,900 four years earlier, Jim said gold was bottoming around $1,050 and was destined to move higher.

With the benefit of two years’ hindsight, Jim’s forecast appears spot-on…

The New Gold Rally

This morning, gold is up to $1,360. Next stop — the mid-2016 highs at $1,375.

That’s impressive enough. But Jim points out “most of this gain has come in the face of rising real interest rates and Fed tightening of nominal rates. These are powerful head winds, but gold has weathered the storm.”

And now, with a weak dollar as official U.S. policy? It’s up, up and away.

That’s bullish enough for gold… but what’s happening overseas will give the new rally even more juice. To wit…

Russia’s gold reserves are now within spitting distance of China’s.

“Russia again added to its gold reserves in December 2017,” writes the veteran gold market observer Lawrence Williams, “bringing its total to around 1,838 tonnes.

“That brings the total Russian increase for 2017 to around 223 tonnes — its largest-ever annual rise, compared with 200-tonne rises in each of the two prior years.”

With China’s official gold reserves sitting at 1,842.6 tonnes — China is surely juking the stats and the real figure is much higher — Russia’s… almost… there. The two countries are competing for the fifth-largest gold stash in the world, behind France, Italy, Germany and the No. 1 United States.

“The two nations’ official reserve figure in combination comes to around 3,680 tonnes, with only the USA holding a significantly larger amount at a reported 8,133.5 tonnes,” Williams writes. “Indeed, if some estimates of the real Chinese gold holding are to be believed, China and Russia between them may well already hold as much, or even more, gold than the USA.”

The Central Bank of Russia routinely buys 20–30 tons of gold every month,” Jim Rickards elaborates.

“That’s part of a long-term buying strategy that has increased Russian gold reserves by more than 1,200 tons in the past 10 years.”

Rivaling China for Sixth Place

Russia places orders with gold dealers long before they’re ready to buy… and they’re on the lookout for a deal — “buying dips and dealing directly with refiners,” Jim says.

“The Central Bank of Russia does not just pick up the phone and buy 30 tons of gold on a whim. The price would skyrocket.”

Many gold analysts believe big-time buyers — like Russia and China — are attempting to drive the price of gold higher. In fact, the opposite’s the case.

“Russia and China do own a lot of gold, but they want to buy a lot more,” Jim says. “Both countries want gold prices to be well-behaved and for gold markets to be orderly until they are much further along in their gold-buying programs.

“Once China and Russia have all the gold they want, all bets are off and they may very well favor a skyrocketing price to undermine confidence in the U.S. dollar.”

Don’t get the wrong idea: Gold is up 29% in barely two years… but that won’t stop China and Russia from continuing to add to their stash. They’re playing a long game.

Which brings us to the trade war the Trump administration launched with China this week — imposing steep tariffs on imported washing machines and solar panels.

“The Chinese may choose to retaliate not with their own tariffs,” Jim says, “but with other forms of financial warfare including diversifying their reserves away from U.S. Treasuries. As China buys fewer U.S. Treasuries, the most likely substitute asset class is gold.

“This is one more reason to expect the recent weak dollar and strong gold trends to continue for the remainder of this year and beyond.”

[Ed. note: In case you missed Jim’s email announcement late yesterday, he’s convening an urgent cryptocurrency conference call. While Jim remains extremely bearish on bitcoin, he’s bullish on next-gen blockchain technology… and he’s finally identified one crypto that meets a strict five-point set of criteria before he’s comfortable issuing a recommendation.

The call is available online at 1:00 p.m. EST tomorrow. No need to sign up in advance; we’ll send you an email reminder tomorrow morning with a link to the event.]

Earnings numbers are sending the Dow further into record territory this morning.

At last check the Big Board was up 200 points at 26,453. Two of the Dow 30 stocks are contributing an outsize share of that gain — 3M and Caterpillar.

CAT’s numbers in particular were astounding… and CAT is an especially useful bellwether of the global economy: If companies are lining up at Caterpillar’s doors to buy bulldozers and backhoes, that’s a positive sign. For sure we’re in the boom phase of the boom-bust cycle.

Gold’s further gains today are a reflection of continued dollar weakness: The dollar index, which slumped below 90 yesterday, sank below 89 today.

And because a weak dollar usually translates to strength in oil, a barrel of West Texas Intermediate has vaulted past $65 and $66 in the 24 hours since we last wrote you.

Bitcoin is a shade above $11,000.

For a second day running, the data gods have delivered a deceptively weak housing number.

New home sales registered a 9.3% decline in the month of December, according to the National Association of Realtors. No one among dozens of economists polled by Bloomberg was expecting a number that weak.

But it looks like a “one-off,” as the Brits would say: The raw sales number for December is still the fourth-best month since the housing crash in 2008, coming on the heels of the best month in November.

Yes, the housing market will cool off again eventually — especially in coastal states where the new tax law makes it less attractive to hold a ginormous mortgage and pay sky-high property taxes. But not now.

A final gold note before we get to the mailbag: One of the gold world’s great gadflies is in line for a powerful position in the new German government.

Peter Boehringer was a key player in the campaign for Germany to repatriate much of its gold stash — as noted above, the second largest in the world.

For decades, a sizeable chunk of Germany’s gold reserve was held in New York and London. It was a Cold War-era safety valve: If the Soviets ever invaded West Germany, at least the gold would be out of their reach. But by 2013, with the Soviet Union long gone, many Germans — Boehringer chief among them — said it was time to bring the gold home. The government bowed to public pressure and by last August, the repatriation process was complete.

Meanwhile, as Chancellor Angela Merkel struggles to form a new coalition government after recent elections… it’s already clear that Boehringer will be chairman of the parliament’s budget committee. That’s because it’s tradition the largest opposition party heads that committee, and the largest opposition party is the anti-euro Alternative for Germany party, or AfD. AfD has nominated Boehringer for the job.

Heh… Not only is he a gold bug, but Boehringer’s campaign platform called for an “urgent end to the permanent, centrally planned, trillion-euro ongoing ‘rescues.’” Grab the popcorn…

“I am confused about The 5 Min. Forecast,” a new reader writes. Hey, she came to the right place to clear it up. “Is that part of my crypto subscription or my general subscription?”

The 5 is a free e-letter you get as a bonus when you sign up for any paid publication from Agora Financial. We’ve published it nearly every business day since April 2007. Welcome to the fold!

“Don’t be such an arrogant jerk,” a reader writes after we offered some gentle guidance at the conclusion of yesterday’s 5.

“You have no right to say who should or shouldn’t invest, or in what. It only proves your only concern is to sell subscriptions with a lot of suggestions but nothing conclusive, and let me remind you anyone can predict what a person could earn after the fact.

“Put your money where your mouth is.”

The 5: Sheesh, try to do someone a favor and someone else jumps down your throat.

What do you mean “a lot of suggestions but nothing conclusive”? Our paid publications are chock-full of specific recommendations. The 5, being a free bonus, is a different animal: From Day 1 our policy has been that our analysis comes free, but the actionable guidance is reserved for paying subscribers.

As for “Put your money where your mouth is,” are you suggesting our editors invest in their own recommendations? We have a strict policy against that, to ensure there’s no conflict of interest. If an editor says something is a “buy,” you know it’s his objective opinion and not his wish that subscribers will pile in and drive up the price of shares that he owns.

Damned if you do, damned if you don’t…

“Steve Mnuchin is turning out to be quite the Renaissance man, isn’t he?” writes one of our regulars.

“Last summer, he was just the third Treasury secretary in history to visit the U.S. Bullion Depository at Fort Knox. After his confidence-inspiring insight ‘I assume the gold is still there,’ it was nice of him to confirm that it’s safe.

“Thank goodness he cleared that up — even if he didn’t actually state that the gold was there.

“Now the Foreclosure King is in Davos, explaining to the paparazzi at the World Economic Forum how a weaker dollar is good for America. Wow.

“The U.S. dollar’s strength is indeed a reflection of our economy’s strength. But it would be awesome if he stopped torpedoing both of them with his mouth.

“Heaven only knows what The Donald is going to blurt out when it’s his turn!

“Got bullion?”

“The feds don’t have the manpower to crack down on pot in any meaningful way without state cooperation,” a reader writes with an eye toward penny pot stocks.

“The powers that be of any state with legal pot sales who have any sense (yeah, I know) will not cooperate with the feds. Hopefully, they will tell the feds to go pound sand.”

The 5: Even Attorney General Sessions admitted as much last March. We cited him at the time: “Essentially,” he said, “we’re not able to go into a state and pick up the work that the police and sheriffs have been doing for decades.”

So rescinding the “Cole memo” this month amounts to so much arm-waving, sound and fury signifying nothing. But hey, it gave us something to talk about for a couple of days while the news shook out some of the weak hands holding shares of cannabis companies…

Best regards,

David Gonigam

Dave Gonigam
The 5 Min. Forecast

P.S. It’s one of the most uncanny market indicators we’ve ever seen.

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