Gold Strength on Strong Dollar Indicates Bottom (Audio)

On Friday, Peter Schiff looked back at a week of market rallies. While the US dollar strengthened, so did gold. In fact, gold approached a 2-year high in euros. Combined with the ongoing negative US economic data, this leads Peter to believe that there is a solid bottom in the gold market. At the end, Peter briefly notes that Ben Bernanke’s memoirs are due for release. Peter explains why he thinks the book should be shelved in the fiction section at your local bookstore.

Highlights from the podcast:

“Well, the markets continued to rally worldwide. The Dow Jones back above 18,000, I think finishing out the week at 18,057, with the NASDAQ just shy of 5,000… But the real action was overseas. You had record highs in the German DAX… Much more action in Asia. The Hang Seng was up I think 8% on the week… Huge moves all around the world in the stock market. Everybody is riding a sea o liquidity. The dollar continued to rebound. The rebound started after the euro failed to hold above $1.10… It finished the week just under 1.06 dollars to the euro…

“On the other hand, gold had a very interest week. It finished back above $1,200. It finished Friday strong. Gold was up about $14. It closed at $1,207. What was interesting about the strength of gold is that the dollar had one of its best weeks in months. The dollar was up better than 3% on the week, closing the week near the highs. Yet gold prices rose despite that. Which means in terms of other currencies, of course, gold was much stronger. In fact, in euros, gold was very close to a 2-year high. We closed at just about 1,139 euros…

“This shows me that the euphoria in respect to the dollar and the US economy is not universally shared. Because if people really were this optimistic about the dollar, gold would be going down. The fact that gold outperformed the dollar, because gold was up in dollar terms this week even as the dollar was up against other currencies. It means gold was more attractive than the dollar, more appealing than the dollar. Because obviously, people made more money in gold than they did in dollars, no matter which country you’re from. I think this shows there’s a lot of support, a lot of strength in the gold market that people don’t appreciate…

“I think this is a good indication that we’re putting in a solid bottom in the gold market. Nobody’s really talking about it. Nobody really expects it’s being made, because everybody is still so hopelessly optimistic, foolishly optimistic on the US economy and on the dollar. They’re not really noticing the solid bottom that is being formed in the price of gold… We’ve been forming this bottom for an extended period of time here, with massive support below the $1,200 level…

“The ability of gold to strengthen in a strong dollar environment is a very positive sign. If gold can be strong when the dollar strong, then it’s really going to be strong when the dollar is week. Ultimately, that’s the future that awaits the dollar, as the speculators that’ve been betting on it wake up to reality and realize that their bets are no good…

“It seems that traders are willing to throw out the first quarter [of economic data]… It doesn’t really matter how bad it is, because all the bad economic data can be excused. It can be blamed on one thing or another, whether it’s the weather, or the strong dollar, or the port strike. It’s always something. As I said before, if you’re blaming it on the strong dollar and you expect the dollar to get stronger, then that drag is going to continue. Obviously, the weather is going to change and the port strike ends, but some other strike begins. There’s always something that you can blame the weakness on…

“Everybody who’s counting on a big rebound in the second and third quarter is betting it all the on the consumer. They’re putting all their money on the consumer and they’re going for broke. The problem is, the consumer is broke and if you’re betting on the consumer, you are going to lose…

“First, let’s look at consumer credit… Revolving credit, which is credit cards… Revolving credit in February tumbled by $3.7 billion. That’s the biggest monthly decline since December 2010, so huge drop in consumers willing to buy things using credit cards. Long term, this is good. We want consumers to stop recklessly buying things they can’t afford. Except, that’s not what the Fed wants them to do… Everybody is counting on consumers buying more stuff, even though they’re broke… How is the consumer going to lead the so-called recovery if he keeps his cash in his wallet? …

“Non-revolving credit. This is almost all automobile loans and student loans. That surged $19.2 billion. That’s the biggest monthly jump since 2011. Most of it is in the student loans, which are now direct obligations of the US government… Students are taking on all this debt. That puts them in a weaker position to consume… I believe a lot of these loans are going to people who don’t even want the education, they want the money… They enroll in college and they can borrow a bunch of money that they can never repay…

“On Wednesday, we got the release of the FOMC minutes. These minutes may have encouraged or emboldened some of the dollar speculators, because at the FOMC meeting the minutes show that there were discussions of raising rates in June. ‘Some members’ – and some could mean just one – thought the Fed should start raising rates as early as June. Sure, of course. They’re always going to talk about raising rates, they’re just not going to do it… The fact that they were talking about raising them in June was enough to get traders to buy the dollar…

“On Thursday we got the release of wholesale trade. This should be a very disturbing number for people betting on a recovery in GDP… Remember, in January wholesale trade plunged by the most in 6 years. In February, the decline wasn’t as big, but it was a decline again… Now, wholesale trade has decline for 3 consecutive months, and that hasn’t happened since 2008… It gets worse. Inventories rose slightly, because of the big decline in sales… Inventories to sales, which is a very important ratio, came in at 1.29, which is the highest inventory/sales ratio since 2008 financial crisis days. It means that wholesalers have a lot of inventory relative to what their sales are. They’re not selling a lot, and they also don’t need more inventory…

“What saved GDP in 2014 was the rush to build inventory in anticipation of a big recovery. What I was saying at the time was that the companies that were building up on inventory were making a mistake… They were believing the hype about a recovery that was not going to materialize… As we got closer and closer to the mirage, we see it for what it is. They’ve loaded up on inventories that they can’t sell…

“I also found out this week that Ben Bernanke’s memoirs are coming out… He had the audacity to title his book ‘The Courage to Act’… I could suggest a far more appropriate title. How about, ‘A Coward’s Way Out’. When the bookstores stock Bernanke’s book, they better put it in the fiction section where it belongs. I don’t want it to be in non-fiction… I think it’s very interesting that he feels compelled to write a book vindicating himself… He has to justify his role in history. Why not let historians do that?”

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