US NATIONAL DEBT

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Gold: The Dollar Reigns Supreme . . . But For How Long?

February 19, 2015

Jeffrey Nichols, Senior Economic Advisor to Rosland Capital, had the following comments today:

Having failed in its attempt earlier this month to move above $1,300 an ounce, gold is once again looking for sustainable support under the technically and psychologically important $1,200 level.

How quickly things can change in world financial markets: just a few weeks ago, it looked like gold might breakout on the upside on the back of bullish geopolitical and global economic developments – and establish a new floor price around $1,300 an ounce. But, having failed in its attempt to move up, we now wonder (along with what must be a majority of gold-market analysts and participants) if gold can indeed move higher anytime soon . . . or if it is destined first to sink further before reestablishing its bullish long-term uptrend.

How gold performs in the days and weeks ahead may have significance in determining the direction of the market over the next few months. Our technical trading models suggest that a reflexive bounce could bring us back to $1,300 fairly quickly – while a breakdown below $1,200 an ounce could trigger even more selling and a further price retreat all the way back to $1,080.

But, importantly, gold’s near-term performance has little to do with the yellow metal’s long-term multi-year direction. As we have written in recent Rosland Gold commentaries, we expect the price of gold will move to new historic highs in the next few years as more people and institutions around the world have the means and desire to hold more of their wealth in gold.

Perhaps the most powerful gold-price drivers so far this year have been the performance of the U.S. dollar in world currency markets and the performance of equities on Wall Street. Historically, gold has been the preeminent “safe-haven asset” and currency of “last resort.”

Meanwhile, gold has ignored geopolitical and global economic developments, the sort of which have in the past supported a bullish price trend. The civil war in Ukraine, the crisis in the Middle East, the possible withdrawal of Greece from the European Union, the pace of global monetary creation – any of these might once have been enough to trigger significant safe-haven demand for gold.

But, lately gold’s traditional role has been surpassed by the appreciating greenback, whose strength in world currency markets has been fueled by increasingly stimulative monetary policies virtually everywhere but in the United States. As the dollar has appreciated, gold denominated in U.S. dollars has depreciated – a tendency that has been exacerbated by the pull of higher equity prices and the flow of funds from under-performing gold to over-performing stocks.

This situation can’t and won’t continue forever. Eventually, markets must reflect realities. The U.S. dollar may be the most attractive (or least unattractive) runner in today’s currency derby – but, fundamentally it remains unhealthy.

About Rosland Capital

Rosland Capital LLC is a leading precious metal asset firm based in Santa Monica, California that buys, sells, and trades all the popular forms of gold, silver, platinum, palladium and other precious metals. Founded in 2008, Rosland Capital strives to educate the public on the benefits of buying gold, numismatic gold coins, silver coins, platinum, palladium, and other precious metals. Rosland also helps people who wish to protect their wealth by including a gold or precious metal-backed IRA in their asset portfolio. Click here for more information.

About Jeffrey Nichols

Jeffrey Nichols, Managing Director of American Precious Metals Advisors and Senior Economic Advisor to Rosland Capital, has been a leading precious metals economist for over 25 years. His clients have included central banks, mining companies, national mints, investment funds, trading firms, jewelry manufacturers and others with an interest in precious metals markets.