If you had any doubt about gold’s recent breakout moves, let me dispel them for you…
To do so, I need to show you a few of President Trump’s recent tweets. This first one is from the early hours of (our) Thursday morning.
‘China and Europe playing big currency manipulation game and pumping money into their system in order to compete with USA. We should MATCH, or continue being the dummies who sit back and politely watch as other countries continue to play their games — as they have for many years!’
This is a direct message from the US President to the US Federal Reserve to cut interest rates and weaken the dollar.
[Side note: I mentioned this tweet in my latest video update, which you can view here. In it I discuss gold and the ongoing melt up in the Aussie market]
But just in case that message wasn’t strong enough, Trump followed it up two days later with this tweet:
‘Strong jobs report, low inflation, and other countries around the world doing anything possible to take advantage of the United States, knowing that our Federal Reserve doesn’t have a clue! They raised rates too soon, too often, & tightened, while others did just the opposite….
‘….As well as we are doing from the day after the great Election, when the Market shot right up, it could have been even better — massive additional wealth would have been created, & used very well. Our most difficult problem is not our competitors, it is the Federal Reserve!’
Trump, like all politicians, thinks you can create additional wealth via the magic of lower interest rates. But it is simply the illusion of wealth. That’s because it comes at the cost of a diminished currency.
But that’s the whole point. Trump sees China and Europe as currency manipulators, and he wants to play the game too. When global growth is slowing, one way to get a bigger slice of the pie is to weaken your currency to maintain or increase export competitiveness.
But, as you can see from the chart of the US dollar index, below, Trump is not winning the currency war. The US dollar has been in a bull market since the start of 2018. However, the index hasn’t done much since late last year…
It’s either consolidating before making another move higher, or in the process of turning down. A break below support (the green line) would signal the end of the US dollar bull market, and would in turn be very bullish for gold.
I’ll get to gold in a minute.
Gold will be the only winner in this war
But first, Trump’s ‘problem’ is the economy. Relative to the world’s major developed economies, the US continues to do well. Data released on Friday (US time) revealed the US economy created 224,000 jobs in June, well above expectations of 162,000.
As a result, the US dollar jumped. The market ignored the Trump tweet and focused on the economy instead.
But make no mistake, Trump wants a weaker dollar. In addition to pressuring the Fed to cut interest rates, Trump is running trillion-dollar deficits. That’s right, TRILLION-dollar deficits.
And then there’s the new trade deals. Although not widely reported on, his trade deal with Mexico and Canada last year came with a currency manipulation clause. I wrote to subscribers of my Crisis & Opportunity advisory about it at the time, and quoted an article from The Epoch Times:
‘WASHINGTON—The new United States-Mexico-Canada Agreement (USMCA) is the first trade agreement in history to directly address the issue of currency manipulation, which could now serve as a precedent for future U.S. free trade agreements.
‘Governments manipulate their own domestic currency in order to gain a trade advantage. The United States has long fought to deter this practice, claiming that it has led to the loss or displacement of millions of American jobs.
‘By keeping their currencies undervalued, governments can make their exports cheap and imports expensive, thus strengthening their competitive positions in international trade and building trade surpluses.
‘USMCA includes the first-ever chapter on currency manipulation, which states that “each party confirms that it is bound under the articles of agreement of the International Monetary Fund to avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage.”’
So you’ve got a demand for lower interest rates, trillion-dollar deficits, and trade deals which combat currency manipulation…
It’s a recipe for a weaker dollar. But weaker against what? How do you weaken your currency when your competitors are trying just as hard to weaken theirs?
You keep trying.
Gold will be the only winner in this war. This isn’t the post-2009 currency war where major economies were starting an expansion after the deepest recession since the 1930s.
This is a currency war getting underway after a 10-year expansion. It’s been the longest expansion in US economic history. The main combatants are fighting over a shrinking economic pie, not an expanding one like 10 years ago.
In this environment, gold is likely to shine. The breakout that occurred in June is the first indicator of this. Now, with gold consolidating that advance (see chart below), you’re getting a chance to get in before what I believe will be another move higher.
But it’s not all about currency manipulation. I believe the recent surge in the gold price could also be signalling something else. Something that could really put a rocket under the price in the years to come.
I’ll reveal my research on what this ‘something’ is in the next day or two. As I’ve said before, hardly anyone is talking about this. That’s what makes it so exciting, and so potentially explosive.
Editor, The Rum Rebellion
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