Juggling Dynamite

A reader recently reminded me of an interview I did with Alasdair MacLeod at the Hard Assets show in New York in May 2012. Here is a direct audio link.  Commercials have been inserted in the clip in a couple of spots, but one is able to click ‘Skip Ad’ to by-pass quickly and continue.

At the time of our discussion on May 16, 2012, metal prices had just begun to roll over from their 2011 all-time-highs. The show was teeming with precious metal promoters predicting that the US dollar was collapsing. I was a rare non-believer and received regular hate mail for my views. After the past 2.5 years of extend and pretend policies in the finance sector, I think that our conversation on sober next steps remains relevant.

One is reminded of all the people who wrote and spoke so passionately about why gold and silver could only go higher…another sad example of buying a story without understanding the capital cycles driving it.

Today the headline ‘strong US jobs report’ gives the Fed further justification to continue on their desired and politically necessary retreat from ‘Quantitative Easing’.   This is supportive for the dollar.  Now through the 86 resistance line (far right below), the 100 level is the next test area ahead.

A rebounding dollar will continue to translate US multinational earnings lower (the reverse of what helped push S&P 500 earnings well above historic norms as the dollar fell). It will also hamper US exports and intensify deflationary effects in other export-focused economies who are all battling each other to make their goods cheap for foreign consumers. It is also likely to continue driving metal prices lower for a while longer:  gold is -9% over the past year, and -38% from the 2011 peak, silver is -24% over the past year and -65% since 2011.

As the long term chart of gold shows below, now hovering just above previous support at 1180, a failure to hold this level suggests a retest into the 700 to 1000 orange band last tested in the 2006- 2008 liquidity crisis.

Danielle Park, Partner, Venable Park Investment Counsel, speaks with Vanessa Collette at the Canadian Investor Conference Toronto. Here is a direct video link.