When The Dollar Breaks down, Metals Will Lift Off

The comments below are an edited and abridged synopsis of an article by Stefan Gleason

Gold and silver continue to be pressured by a rising US dollar. Measured against real economic goods, the dollar has been losing value. But futures traders who take cues from foreign exchange markets have decided to sell precious metals contracts in response to superficial dollar strength. The US Dollar Index chart looks extremely overbought.

When The Dollar Breaks down, Metals Will Lift Off - BullionBuzz - Nick's Top Six
Businessman on blurred background with exploding dollar currency 3D rendering

So, the dollar is due for a retracement against its foreign counterparts. That will likely spark a rally in metals markets.

Since the Fed began hiking, stocks have plunged into a bear market as oil, copper and other commodities have also plunged. Markets are now pricing in a recession, something that should give Fed policymakers pause.

Any more bad news out capital markets or the economy will lead to calls from Wall Street and Washington for the Fed to pivot away from inflation fighting.

Meanwhile, across the Atlantic, the European central bank faces pressure to prevent the euro from falling further.

The dollar is no safe haven from a euro collapse. Over time, all fiat currencies depreciate against gold and silver.

For now, the cyclical upswing in the US Dollar Index is masking underlying dollar weakness. Its purchasing power, the ultimate measure of its strength, continues to decline.

Market cycles are often driven based more on sentiment and momentum than underlying fundamentals. But fundamentals ultimately determine how viable a given market move is for long run.

Investors will eventually realize that the depreciating dollar isn’t a safe haven from financial or geopolitical turmoil.

And at some point, not even nominal dollar strength on foreign currency markets will prevent precious metals from trending toward their fundamental value as the strongest forms of cash.

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