I talked about the chart on your left in my January 2017 monthly issue and the reasons for this major detachment of the price of gold from the growth of U.S. debt. You may want to revisit that discussion if you find it of interest. All I want to demonstrate now is that if that relationship had continued as it did for 40 years since Nixon removed gold from the dollar, the price of gold would now be over $2,000/oz. Whether gold returns to this correlation remains to be seen. If it doesn’t, we are facing a major global deflation, as I discussed in January.
Certainly this detachment, which occurred at the end of the gold share bull market, has been a major reason for the pain that we gold share investors have suffered through. But for Americans who buy and sell everything in dollars, the very weak Canadian dollar has also hurt the value of our Canadian-based gold mining shares.
However, based on Michael Oliver’s missive this past week on the Canadian dollar, that may be about to change. Here is what Michael wrote this past Wednesday.
“Canadian Dollar futures’ annual momentum has built what MSA sees as a massive base. (Hint: view the momentum chart, below left, as you would a price chart.) First, the downtrend was taken out in early 2016. Since then, the best upside readings crested horizontal to the 2014 peak readings.
“Therefore the horizontal structure. Close a month over that line and the conditions for a major momentum bottom are completed. If futures can close April at or above .7634, then the red horizontal comes out. This number is in line with what’s needed on quarterly momentum (.7645 traded). If these numbers are achieved, then MSA declares the Canadian Dollar fully into a bull trend, and that trend factor should reflect on one’s assessment of commodities as an asset category.”