For the almighty dollar, 2017 has been nothing short of abysmal. Next year might be even worse. The dollar is down more than 7 percent versus the world’s major currencies this year, the most in over a decade.
Six months ago, it looked like gold and silver had put in solid bottoms. They looked so good that we were willing to call the end of the bear market in metals. Both gold and silver rallied hard, with gold moving up 12% and silver 20% in six weeks. The metals looked great, the picture was rosy, and nothing could stop the next bull market in the metals until Bitcoin started to explode.
Even with the US dollar making new low after new low, the metals couldn’t catch a bid. That was a warning sign. But new money seems to love the crypto space and precious metals are now threatening to break down. The coming days and weeks will go a long way in determining if we were right and the bear market is over, or the gold and silver rally was just another selling opportunity. The metals must step up here and hold their key levels of $15.49 in silver and $1,234 in gold or it could be a long winter, especially with the Bitcoin gaining more popularity and accessibility. We are cautious bullish but with a great deal of concerns.
Most of the people that we talk to wouldn’t be terribly surprised if, by the end of next year, the dollar was substantially weaker. Analysts see the greenback losing ground to 13 of the world’s 16 most-widely traded currencies through the end of next year.
There are also signs inflation may be firming after a lengthy bout of weakness, though data released by the Labor Department early on Wednesday showed some unexpected weakness in consumer prices.
So, the overall outlook for gold and silver prices seems a bit more stronger NOW, than it has been for several months.
Why you shouldn’t count Gold out just yet
It seems like only six years ago the shiny metal was flavor of the month, hitting a record $1,900 a troy ounce while its backers prophesied the end of the fiat money system.
With bitcoin sucking up all the crazy in financial markets, gold looks to have lost its luster. The CBOE/Comex Gold Volatility Index, a rough proxy for the amount of fun and profit available for precious metal traders, touched a record low of 10.17 last month, from levels north of 37 back in 2011.
That may be overdue a change. Despite suffering its worst week since May last week, the outlook for gold could be stronger now than it has been for several months. Here’s why.
1. Interest rates
That may look like a typo, but it’s not. The received wisdom is that higher interest rates — like the U.S. Fed Funds rate hike expected Wednesday — are bad news for gold. That’s because tighter money tends to be accompanied by better bond yields and stronger earnings, highlighting commodities’ inability to produce income for investors.
The truth isn’t quite so simple. After all, spot gold was stuck around $1,060 an ounce two years ago when the U.S. Federal Reserve started lifting rates above their post-financial crisis level of 0.25 percent. At 100 basis points north of there, gold is trading around $1,248 an ounce.