Rickards: Trump’s Currency War Declaration Has Sparked a Multi-Year Gold Rally
The comments below are an edited and abridged synopsis of an article by Jim Rickards
President Trump is apparently declaring a currency war on the rest of the world. Trump resents China and Europe for cheapening the yuan and the euro against the dollar in order to help their exports and hurt America’s. He says it’s time for the US to cheapen the dollar, and he has a point.
But there’s a problem with Trump’s currency war plan: There’s nothing new about it. As soon as one country devalues, its trading partners devalue in retaliation, and nothing is gained. It’s a race to the bottom. Currency wars produce no winners, just continual devaluation until they are followed by trade wars.
Meanwhile, the Fed is a critical player in the currency war because it has a major influence on the dollar. Markets will cheer a rate cut, and probably sell off if the Fed does not cut rates. But both the markets and the Fed will have to wait until the last possible minute before this conundrum is resolved. And the world will be watching closely.
The good news is that gold has broken to the upside. The $1,440 level is well within reach, and it seems like a solid floor, despite occasional dips.
More importantly, a new multi-year bull market has now emerged. Turning points from bear to bull markets (and vice versa) are not always recognized in real time because investors and analysts are too wedded to the old story to see that the new story has already started.
The price action over the past six weeks has been even wilder than the price action over the past six years. As late as May 29, 2019, gold was languishing at $1,280. Then it took off to $1,420 by June 25, 2019, an 11% gain in just four weeks.
Gold just as quickly backed down to $1,382 on July 1, rallied back to $1,418 on July 3, and fell again to $1,398 on July 5. These daily price swings of 1.5% are the new normal in gold. Again, the good news is that the $1,400 floor seems intact.
Rickards discusses what’s driving the new bull markets in gold and silver and says, “Since I have articulated the case for continued strength in gold prices, my expectation is that gold will continue to outpace silver. Either way, both metals are heading higher.”