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Commodity Trade Mantra: Powerful Forthcoming Rally in Gold and Silver Ensured by Weakening Dollar & Rising Inflation

Commodity Trade Mantra: Powerful Forthcoming Rally in Gold and Silver Ensured by Weakening Dollar & Rising Inflation

By: Christine von Liederbach
December 11, 2020
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Article by CommodityTradeMantra

Rally in Gold and Silver Ensured by Weakening Dollar & Rising Inflation

Gold and silver prices are modestly up in midday U.S. trading Thursday, supported in part by a weaker U.S. dollar index on this day and by the overall bullish chart postures for both metals. The Fed is monetising debt on an epic scale, through which it increases the quantity of money heavily. By the end of August 2020, the US money stock M1 had grown 40 percent compared to last year, M2 by 23 percent. The increased quantity of money will, sooner or later, most likely to be reflected in higher prices: be it consumer and/or asset prices.

The debasement of the purchasing power of money

As long as central banks continue with their inflationary scheme, the savvy investor has good reason to consider keeping gold as part of his/her liquid means because the purchasing power of gold cannot be debased by central banks printing up ever greater amounts of currency. And unlike bank deposits, gold does not carry a payment default risk. At current prices, we believe gold offers an attractive risk-reward profile, meaning a significant upward price potential that comes with a limited downside price risk.

Equity market turmoil is supporting gold’s role as risk diversifier, but the stronger dollar could curb gold investment. Central banks remain dovish, with interest rates expected to sit near zero. Ongoing quantitative easing should support investor demand. Meanwhile, market focus will gradually shift towards reviving physical gold demand. Gold remains an attractive investment, as the recent price setback is likely to be short-lived. Ample money supply, lower interest rates and macro uncertainty should support gold investment.

Gold and Silver stand to gain

 

Stefan Gleason: Since posting new record highs in early August, the gold market has consolidated above $1,900/oz support.

A close below the $1,900 level would carry bearish implications for the near term.

Alternatively, a move back above $2,000/oz would likely be followed through to the upside with a rally to fresh highs. Silver, in turn, could be expected to run to new multi-year highs above $30/oz.

These breakouts will happen eventually. The relentless mega trend of dollar depreciation (i.e., inflation) ensures hard money will gain value versus fiat Federal Reserve notes.

The question is whether a deeper correction occurs first… or the major trend accelerates.

Inflation rates may be set to accelerate as the Fed aims for an “average” of 2%. According to central banker logic, this requires pushing inflation above 2% for an unspecified period.

Holders of low-yielding U.S. dollar-denominated debt instruments should be quite concerned about the prospect of losing purchasing power.

The Chinese government apparently is. The second-largest holder of U.S. Treasuries, worth over $1 trillion, is now gradually selling them.

Chinese economist Xi Junyang announced last week that the country would aim to hold $800 billion in U.S. debt “under normal circumstances.” But, he added, “China might sell all of its U.S. bonds in an extreme case, like a military conflict.”

If major world powers dumped their Treasury holdings and stopped accepting U.S. currency in international trade, the U.S. dollar’s privileged status and value would collapse.

For now, the decline of the dollar appears likely to proceed at a more gradual pace. There will likely even be mini rallies along the way.

Given the spate of bearish developments to hit the U.S. dollar over the past few weeks, it’s possible currency traders have grown too negative toward the buck in the very near term. A counter-trend USD bounce would likely put downward pressure on precious metals prices.

Of course, gold and silver stand to gain against all fiat currencies that trade against the U.S. dollar.

So regardless of whether the dollar rises versus the euro or the yen or the yuan over any given period, it will not become any sounder of a currency – and will certainly not diminish the long-term case for owning physical precious metals.

To read this article and charts in Commodity Trade Mantra, click here.

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Although the information in this commentary has been obtained from sources believed to be reliable, The Gold IRA Company does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. The Gold IRA Company will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.

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