Is bitcoin mining profitable 2013 calendar gold in US dollar terms does provide a useful benchmark as over time the dollar is probably the world’s most stable currency and is, for most nations, their primary reserve currency in their foreign exchange holdings. This relationship between gold and the US dollar, with the former providing perhaps the most overt indication of how the greenback is doing vis-à-vis other currencies is the reasoning behind what seems to be an ever-increasing view that the powers-that-be collude to suppress the gold price to hide what is an overall indicator in the decline of the dollar’s purchasing power. President Nixon severed the convertibility of the dollar for gold to protect US gold reserves.
In some sectors of the economy this decline is readily apparent. Grocery shopping, property prices, salary levels etc. But it’s not only the purchasing power of the dollar which has been in decline. The same is true of virtually any nation’s currency. All currencies nowadays are fiat in that they have no backing, which is why some economists call for a return to a gold standard.
This is probably impractical without a massive gold price increase and, even then, would probably be overrun very quickly by ever increasing consumer demand for goods and services. Chinese bid to replace the petrodollar! So perhaps gold investors should treat the latest rise in the gold price purely as a wealth protection exercise. That is what gold is good at over time. UK, have made direct comparisons that much harder for the peerson in the street to relate to. But regardless, gold has moved up sharply in dollar terms in the past few days despite mixed economic data out of the USA. Much of this increase so far seems to have passed silver by and the gold:silver ratio has actually risen a little standing at close to 78 at the time of writing, although silver has been making a bit of a late run ahead of the weekend as have platinum and palladium.
We still stand by our forecast that the gold:silver ratio will come down to 70 or lower during the course of the year which would make silver potentially a better investment than gold if it does follow its historic pattern and rise faster than gold when the latter is on the increase. I look at these forecasts as being conservative and if the dollar continues to fall and precious metals prices to rise sharply. However, also bear in mind that gold and silver had a strong start in 2017, but then tended to pull back. 2018 could see a repeat of this pattern, although I don’t see palladium making the kind of gains it did last year. The terms and conditions for publication of articles on Seeking Alpha prevent me from posting them here, but follow the links to read them on that site. The price of gold and gold mining stocks were very competitive in 2017.
NYSE Arca Gold Miners Index, gained more than 11 percent. All of this occurred even as large-cap stocks regularly closed at all-time highs and cryptocurrencies invited massive speculation. We can thank the Fear Trade for much of gold’s performance last year. The Fear Trade, of course, is driven by low to negative real interest rates—when inflation erodes away at government bond yields—deficit spending, a weaker U.
I believe these forces will only intensify in 2018. The risks inherent in the Federal Reserve’s monetary policy tightening is a good place to start. Beware the Rate Hike Cycle? Since the Fed lifted rates last month, gold has behaved just as it did following the last two December rate hikes—that is, it’s begun to appreciate. 1,300 an ounce, a psychologically important level, and has since climbed an additional 1 percent.
We’ve seen this movie before. 1,370 an ounce, a 29 percent surge since the December 2015 rate hike. 1,360, up close to 18 percent since the December 2016 rate hike. Obviously nothing is guaranteed, but let’s say gold were to follow a similar trajectory this year as it did in 2016 and 2017. 1,600 an ounce by summer.
These are prices we haven’t seen in four years. I think it’s also worth pointing out in the chart above that support looks good for gold. For the past couple of years, it’s steadily posted higher lows. But wait—shouldn’t rate hikes put a damper on gold prices? I’ll let Jim Rickards, editor of Strategic Intelligence, field this question. After all, the December rate hikes in 2015, 2016 and 2017 were all advertised well in advance by the Fed and were fully discounted by the market.
This means that the rate hike was a nonevent, because gold was already priced for it. Yet the rate hike itself and the Fed’s commentary suggest both a headwind for economic growth and possible Fed ease in the form of future inaction and forward guidance relative to expectations. Gold markets, in other words, could be forecasting slower economic growth as a result of higher borrowing costs. You might not agree with Jim here, and I’m not asking you to. Consumer spending is up, optimism is high and we have a robust labor market with unemployment at a 17-year low of 4.