Can Gold Defeat the Big, Bad Dollar?

Get ready for a bounce… [Morning Reckoning] March 07, 2023 [WEBSITE]( | [UNSUBSCRIBE]( Can Gold Defeat the Big, Bad Dollar? Baltimore, Maryland March 07, 2023 [Greg Guenthner] GREG GUENTHNER Good Morning Reader, With just a little more than nine trading weeks under our belt in 2023, gold is already becoming one of the most frustrating plays on the market. It’s an impressive feat. After all, there’s no shortage of clunky, broken trades in this market. Nearly two years of bear market action has effectively stripped investors of their conviction. We’re now watching key battles break out at pivot points across several major sectors. Here are just a few of the gut-wrenching moves tormenting us so far this year: Many beaten-down growth stocks streaked higher in January, only to reverse lower in February. Energy stocks failed to break above their November highs and reversed lower, yet are now bouncing at the bottom end of a wide, sideways range. Crypto also can’t get its act together. Most of the cryptosphere has abruptly stalled and reversed after Bitcoin failed to post a clean breakout at $25K… But gold is the most discouraging asset of them all as bulls and bears battle for control following another sloppy, trendless month. [Rickards: Meet My #1 Stock Picker]( He’s a former hedge fund manager… With a loyal following of more than 100,000 American investors… Plus, he’s helped my readers close [one winning trade after another]( with gain like: - A 128% in 28 days … - A 174% in 11 days… - A 203% in 26 days… So… How are gains like these possible in today’s crazy market? How does this strategy work? And how can you get ready…before the next buy alert? [Go here now to get the answer from my #1 stock picker](. [LEARN MORE]( Earlier this year, I detailed how gold has been building for a significant change in trend since 2019. That’s when the shiny yellow rock began to rally off its bear cycle lows, breaking out of a choppy base years in the making. The base breakout also helped trigger a wild rally into the early days of Covid – along with another test of the elusive $2,000 level. You already know what happened next. The move didn’t stick, and gold was banished to a wide, choppy range lasting the better part of the past three years. Spoiler alert: Gold’s still trapped! The promising rally off the October lows hit the wall once the calendar flipped to February. This time around, gold hit the wall at $1,975, then dropped four straight weeks. Remember, gold topped out just above $1,900 during the prior cycle in 2011. The two brief runs above $2,000 in 2020 and 2022 also led to sharp reversals. Gold has never posted a monthly close above $2,000. Despite a valiant effort to kick off 2023, the January rally couldn’t get it done. That momentum is now gone, and we’re left to pick up the pieces – and figure out what might unfold next. The Dollar Problem First, it’s important to understand what went wrong with the gold rally. Here’s a hint: it begins and ends with the US Dollar. The strength of the buck has been a thorn in the side of risk assets since the bear market picked up steam in late 2021 – early 2022. The dollar has an inverse relationship with stocks and commodities. Dollar up, stocks and commodities down. Simple! That’s exactly what we witnessed in 2022. The dollar (and rates) rallied, while stocks and other risk assets slumped. But the dollar index topped out in October following an incredible rally. The uptrend was clearly exhausted – and it began to break down in November. Naturally, this is also where precious metals caught a bid. Dollar down, gold up! February was the next big turning point. After cratering for three months, the dollar caught a bid and zoomed higher. The move stalled the gold and silver rally and slammed the miners. Unfortunately, this was just the beginning of a month of pain for the gold bulls. As the dollar rally picked up steam, precious metals tanked. By the end of the month, gold had coughed up its year-to-date gains. Meanwhile, silver dropped all the way back to its October swing highs. These moves are the definition of a hard reset. Now, the dollar and precious metals are approaching critical levels. Here’s the US Dollar Index: [chart] The February rally has lifted the dollar index back to 105, an important pivot going all the way back to last summer. This is the same level where the buck failed in December. It’s also where that short relief rally turned south in early January. What happens next is critical for gold (and stocks, for that matter). If the dollar index can’t break above 105 and turns lower, there’s little doubt we’ll see a rally in precious metals. We can also assume this would be a significant rally with some staying power, since a rejection at 105 would probably lead to the continuation of the dollar’s downtrend – and a retest of those February lows. [Response Requested]( 1/1000th of an ounce of gold available As a Morning Reckoning reader, Jim Rickards is offering you 1/1000th of an ounce of gold when you upgrade your account. It will come in the form of a “Gold Back” - a new type of gold currency that’s starting to spread across America ([click here to view](. If you have not responded to Jim’s offer yet, and want to know how to claim yours… Please click the link below for details. [Click here to learn how to claim your new Gold Back Currency<]( Thanks! Amber Anderson Customer Service [LEARN MORE]( Planning for a Gold Bounce The dollar index is slowly slipping lower toward 104 as of this writing. There’s no guarantee that this fade will continue, but every move has to begin somewhere. We need to watch closely this week for a decisive reaction. If we do see significant slippage in the buck, the next leg of the gold rally should attract some fresh eyeballs. I initially thought the January rally in precious metals could be the first wave of a new secular bull run. Perhaps the February hard reset is just a bump in the road – and fresh momentum will carry gold and silver plays higher into the end of Q1. Our playbook from earlier this year still applies if we do see a strong bounce. I suspect many investors still are not prepared to ride a gold breakout. Remember, index funds offer essentially zero exposure to precious metals. If you want to profit from a move, you have to actively seek out these gold plays. Mining stocks started to perk up last week at do-or-die levels. But they have work to do. I’ll be watching GDX and some individual names for any clues that momentum is returning to the sector. Let me know what you thought of today’s article… and if you want any more topics covered by emailing me [here](mailto:feedback@dailyreckoning.com). Best, [Greg Guenthner] Greg Guenthner Contributing Editor, Morning Reckoning feedback@dailyreckoning.com [Warning: Will “Bidenflation” Destroy Your Retirement?]( [Click here to learn more]( If you’re like most Americans, you’ve worked hard for decades to build your financial legacy. And now, as a result of Biden’s disastrous money printing policies, that’s all at risk. According to one top retirement expert, “Bidenflation” threatens to destroy your retirement and make your hard-earned savings worthless. That’s why you must take action right away to protect yourself… [Click here now to get the simple, step-by-step actions to survive “Bidenflation.”]( [LEARN MORE]( In Case You Missed It… Sean Ring, Editor The Barbarous Relic is Ready for its Close-Up [Sean Ring] SEAN RING Good Morning Reader, One of the highlights of my week is the Paradigm Editorial Call. All the big boys are there; Byron King, Ray Blanco and Dan Amoss… to name a few. Jonathan Rodriguez always arrives armed with reams of statistics. Ace options trader, Alan Knuckman, keeps us from straying too far into pessimism. I’ve learned truckloads about options and attitude since Alan started joining our call. To paraphrase Don Rickles, “Alan is the best; just ask him!” Of course, I write that with a wink and smile because I have learned to look at things differently. At my age, you’re a grateful old dog when you can learn some new tricks. We have great chats and arguments, all in the name of sharing what we know with each other. Jonathan and Alan are the IrresistaBulls. Dan, Byron and I, the ImmovaBears. This week was no different. Well, until we got to the one subject we all – somehow – agreed on. And that subject is gold. [Biden’s “Hush-Hush” Plot Uncovered]( [Click here to learn more]( Right now, Joe Biden – along with 9 of the world’s largest banks – have initiated [a disturbing new experiment with YOUR cash](. It’s called “Project Cedar” – and up to now it’s been kept fairly “hush-hush”… But in [this urgent new exposé]( you’ll discover critical details behind Project Cedar and what Biden’s master plan really is. [Click here to learn the critical details before it impacts your money](. [LEARN MORE]( I think we were more surprised than anything else. And what a pleasant surprise it was! So shocking that I decided to write about it for you. But before I dig into the yellow metal, some housekeeping. On January 26th, I wrote a column for the Morning Reckoning titled, “[Give Up on the Idea of a Free Society]( My good friend and Libertarianism.uk podcast host, Andy Duncan, liked it so much, he interviewed me about it. If you’ve got a spare thirty minutes, feel free to watch it [here](. According to Andy, my t-shirt stole the show. Next bit of housekeeping: I will be hosting this Friday’s Rickards Uncensored session. The star of the show will be none other than Byron King, our ace geologist, lawyer, ex-Naval aviator, and Rickards precious metals and energy expert. Byron and I will talk about his favorite gold picks for 2023. I encourage you to attend so you can hear Byron’s best. Ok, with the housekeeping out of the way, let’s get to today’s piece on the yellow metal… and why it’s back in favor. James Bond and Goldfinger Although I think From Russia with Love is a better movie, Goldfinger is undoubtedly the archetypal Bond film. From Bond’s Aston Martin DB5 to “No, Mister Bond, I expect you to die!” Goldfinger started many of the traditions and tropes we’ve come to expect from Bond films. After Auric Goldfinger murders Bond’s girlfriend by suffocating her skin with gold paint, M is concerned whether Bond can go on with the mission. M asks, “What do you know about gold, (not paint, bullion)?” Bond coolly and inimitably replies, “I know it when I see it.” Don’t we all, Commander Bond? And that’s the thing. Most people intuitively understand that gold, the yellow metal that never rusts, is something special. But no one really explores gold beyond that point. So let’s quickly review why it’s a good idea to own at least some gold. [Crypto Legend Reveals: “The Next Bitcoin”]( He called Bitcoin at $61. Now he says this next crypto will be even bigger. In fact, he’s targeting 25X gains over the next year alone. [>>Click here now for the details]( [LEARN MORE]( Why Own Gold at All? Gold shines like the sun – is malleable and divisible and never rusts. It was the perfect metal from which to make coins. It also has a natural supply constraint. No more than 2% of the global gold supply has ever been mined in a single year. Gold is also no one’s liability, unlike dollars. That is, if you own gold, you don’t owe anyone anything. But the USD is often referred to as a liability because it is a debt-based currency, meaning that it is backed by the full faith and credit of the US government. When the US government issues dollars, it is essentially creating a liability for itself, as it is obligated to honor the value of those dollars by providing goods and services in exchange. Of course, the difference between what it costs to produce one hundred dollars (about 17 cents) and the value of goods producers need to provide to acquire one hundred dollars is called seigniorage ($100 - $0.17 = $99.83). It’s a huge profit for the USG, which is why the French coined it “the exorbitant privilege.” There are five big reasons to own gold, especially in times like these: - Store of value: Gold is often seen as a hedge against inflation and currency fluctuations. It’s been used as a store of value for thousands of years and has maintained its purchasing power over time. - Diversification: Gold is a tangible asset that isn’t directly tied to the performance of other investments, such as stocks and bonds. This makes it an attractive option for investors looking to diversify their portfolios. - Safe haven: During times of economic and political uncertainty, gold is often seen as a safe haven asset that can help protect wealth from market volatility and systemic risk. - Potential for appreciation: While gold doesn’t generate income like stocks or bonds, it has the potential to appreciate in value over time. This makes it an attractive option for investors looking to take advantage of price fluctuations in the gold market. - Cultural significance: Gold has a long history of cultural significance and has been used for ornamental, ceremonial, and religious purposes for thousands of years. Owning gold can therefore hold sentimental value for some individuals. So owning even a bit of gold always makes sense. But right now, it makes even more sense because of recent price movements. In March 2022, an ounce of gold traded up to $2,043.30. Then the price fell to November’s low of $1,626.65. It started to rally hard from there to reach about $1,970 at the beginning of February. For some reason – probably the realization that the Fed will continue to hike – gold fell to its present price of roughly $1,836. But far from thinking there’s more downside, nearly all my colleagues are looking at the upside. What’s the Upside? Well, if you use the unadjusted high from 1980, that price is $850. But adjusting that $850 to 2023 dollars gives you $3,074. That’s 67% upside. And that’s if you just buy physical gold. If you trade gold futures, ETFs, or gold mining companies, your upside can be much higher. Why Would Gold Head to $3,074? My friend and colleague Dan Amoss put together a great chart for Strategic Intelligence readers. Speaking of Strategic Intelligence… My colleague Jim Rickards just predicted the end of the U.S. dollar… He’s seeing something coming on the horizon – where the government will confiscate your cash… or your cash will simply become worthless paper. There’s a way to sidestep this government-backed invasion into your bank account, however. He’ll give you the roadmap to protecting yourself… including how to use [gold]( to safeguard your wealth. [Click here to learn more.]( Now let’s continue with this chart… It shows a deeply inverted yield curve right now. That is, short-term rates are higher than long-term rates. That happens in deep hiking cycles. The thing is, when the hiking stops, and the yield curve snaps back to normal (long > short) from an inversion, gold tends to rally hard and fast. We think that will happen sometime near the end of the year. So now is the perfect time to buy gold if you haven’t already. Really, you haven’t missed the big move yet! And there are two other geopolitical events worth mentioning. Who Owns Most of the Gold? These are the top countries who own gold: - United States of America - Germany - Italy - France - Russian Federation - China - Switzerland - Japan - India - Netherlands More and more central banks are scoffing up gold to hedge against a USD collapse. And if central banks are buying, the price will certainly get driven up. Sooner or later, USD hegemony will be a thing of the past. The only way you can protect yourself against that is to own gold. Wrap Up There are some compelling reasons to own gold right now. It’s underpriced, has huge upside, and is about to get back to the adult’s table in currency products. History may look back on the Bretton Woods era and say, “Paper, schmaper…” I hope you enjoyed this insight. Let me know what you think by emailing me [here](mailto:feedback@dailyreckoning.com). Be sure to tell me if there are any topics you’d like me to cover in future articles. All the best, [Sean Ring] Sean Ring Contributing Editor, The Morning Reckoning feedback@dailyreckoning.com Thank you for reading The Daily Reckoning! We greatly value your questions and comments. Please send all feedback to [feedback@dailyreckoning.com.](mailto:dr@dailyreckoning.com) [Greg Guenthner] [Greg Guenthner, CMT,]( is chief strategist at Forge Research Group. He has spent the better part of the past two decades developing long-term and short-term strategies with a single goal in mind: to help everyday investors generate outstanding returns and control their financial futures. Greg’s charts, analysis, and insights have appeared in Marketwatch, Forbes, Yahoo Finance, and many other financial publications. 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