PIMCO: “Currency Cold War” May See Gold Soar Higher

The comments below are an edited and abridged synopsis of an article by Mark O’Byrne

One of the most well-informed investment analysts in the business, Joachim Fels of Pimco, has warned that we are in a currency cold war that may see gold soar much higher.

PIMCO: “Currency Cold War” May See Gold Soar Higher | BullionBuzz
US Dollar and China bank roll at front surround with world major countries, india, japan, europe and uk on chessboard, US and China trade war, global financial economy concept.

He recently commented on the global superpowers: “If there is a winner in this currency cold war, it’s going to be the US, in the sense that the dollar is more likely to weaken than strengthen from here.”

A currency cold war is when currencies are openly manipulated by governments in order to make their goods cheaper and more competitive in foreign markets.

Having a cheaper currency has short-term benefits. Goods are more competitively priced. It involves the manipulation of interest rates, currency trading, QE, and a do-whatever-it-takes approach to monetary policy not to keep inflation in check, not to manage employment, but to win against perceived aggressors, in this case China and Europe.

It is a winner takes all, competitive mind set. It is also the end of the rules-based international order where western allies sought to reduce barriers to trade, increase cooperation and raise all boats together.

The Fed heads have talked up preventative measures to stimulate the economy and get ahead of any slow-down. This means that they are turning pro-cyclical, pushing up asset prices in order to stave off the consequences of a downturn.

The reason is clear: It’s because of the amount of money printing and asset price pumping of the past 10 years, with $20 trillion in new currency being dumped into the financial system.

Any economic weakness or loss of market confidence could cause indexes to tumble under the weight of bankruptcies brought on by higher market interest rates. There is a 50/50 chance that the Fed will ease by 50 basis points soon.

Watch gold in these markets; it is the canary in the increasingly unstable mine.

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