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March 29, 2023
Yesterday we talked about the powerful formula at work for a weaker dollar –maybe a structural decline in the value of the dollar.
Not only has the rate outlook swung dramatically over the past few weeks (from tighter to easier, by year end), but the dollar's world reserve currency status is simultaneously and opportunistically being challenged. And from a supply standpoint, the Fed, in the midst of global banking stress, freed up access to dollars through currency swaps with major central banks (a relief valve on supply pressure).
This is all dollar negative.
And the chart on the dollar is already vulnerable to a technical break lower …
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What are commodities primarily priced in (at least for now)?
U.S. dollars.
So a lower dollar tends to mean higher commodities prices.
With that, if we look at the chart of copper, we can see a near inverse of the dollar chart. This is a market in structural supply deficit and now on the verge of a technical bullish breakout in price …
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Next, let’s take a look at oil …
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With a fall in the dollar, the rise (bounce) in the price of oil would only be amplified by 1) the challenge to the petrodollar, 2) an undersupplied oil market that is (by design of the clean energy agenda) underinvested in new production, AND 3) the U.S. government's need to replenish the Strategic Petroleum Reserves.
Finally, let's look at gold …
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We've talked about the gold trade often in my daily notes. Here we are back around record highs, just below $2,000.
Remember, central banks around the world stockpiled the most gold on record last year. When surveyed, central banks said their accumulation of gold, is with the goal of getting to their "historical positioning" in gold as a reserve asset.
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