Back To The Chopping Block For The Dollar…

A Pfennig For Your Thoughts
 
January 4, 2021
 
*Book squaring on 12/31 stopped the dollar selling… 
* But that only lasted one day… Gold is up $35 this morning! 
 
Good day… And a Marvelous Monday to you! The first Monday of 2021… Today, would have been my Dad’s birthday, so I’m thinking of you today, Dad… Well, did you have a fun and safe celebration for New Year’s Eve? I didn’t think I would make it to midnight, but I did, receiving my second wind around 10:30pm… We were entertained by a fellow condo owner, who played guitar and sang to us all night. And not once was I tempted to ask him if I could “sit in”… Well, the two College football teams that will play in the National Championship Game next week, are Alabama and Ohio St. And the NFL playoffs are set… We’ll all have football overload next weekend! America starts us off in the new year with their song: Lonely People…
  
Ok, so I said what I said last Thursday morning, because that’s how it looked at that time… I’m talking about my bold claim that the dollar was ending the year on a sour note…  turned out to be in error… Now, while it was not a good year for the dollar, on Thursday, the selling of the dollar came to stop and just like that! The dollar bugs were dancing in the streets once again… But I have to tell you that I don’t think that this is any reversal of trader sentiment that has come over the markets of selling dollars… It had to book squaring, like I talked about on Thursday… And today, we’ll see just how that will play out… My thought, as I look at what the overnight markets did, is that it’s back to selling dollars once again today…
 
Gold did gain $3.70 on Thursday, and Silver lost 29-cents. Gold closed 2020 with one of its best years in a decade… And was just below$1,900 at $1,898, to close the year.  This is a BIG week for Americans, as the Senate will vote on accepting the electoral college’s finding. There’s also a HUGE protest / demonstration being planned in D.C. on Wednesday, to protest the election results… I’ve never seen this all play out before, so I’ll be interested in seeing what happens… But that won’t have too much to do with what the dollar does this week. Or, could it? Only the Shadow Knows….
 
So… As we start 2021, it’ll be interesting to see if the same old economists dust off their suits, and come out to tell us that it will be a good year for the dollar? Or, will they come to their collective senses and say otherwise? I saw an article yesterday where the author tried like heck to get his readers to believe that he believed the dollar would rebound VS the euro, as the two Central Banks in play (The Fed and ECB) see their policies diverge…   You know, this gets me because, I’m sure his editor told him to come up with a story about how the dollar will rebound…  Good Try… But it’s not going to work…
Because the “players” that make that determination, the traders, hedge funds, Pensions, Corporations, etc. I would bet a dollar to a Krispy Kreme that they didn’t read your article… And besides, a trend is a trend… And if you’re a non-dollar investor, then the trend is your friend, as long as it’s the end of the strong dollar trend!
 
You know, I’m not trying to be biased here… I present the facts and then comment on them… For the last 9 years, I’ve talked more about debt accumulation, ZIRP, QE, and stimulus packages, that should have damaged the dollar’s value, but didn’t… Because… The dollar was in a strong trend, and when that happens, as we saw the last 9 years, it would take more than those things to damage the dollar…
 
And then about one-half the way through the strong dollar trend, I came to realize that we ere never going to return to fundamentals again… Well, maybe “never” is too strong of a word, but it sure does feel like it will be “never”… Instead, it’s all about trader sentiment…
I’ve talked about this trader sentiment since that time… I mean look at what’s going on these days… We have the euro on a multi-month rally that has brought the single unit from 1.08 in May 2020, to 1.22 (1.23 before the book squaring last Thursday) , and the Eurozone fundamentals are bad, very bad…. And traders don’t care, they’ve made a commitment to selling dollars, and that’s what they have on their collective minds!
 
In the overnight markets last night the dollar has gotten placed back on the chopping block… Gold is up more than $35 this morning, and the euro has just about recovered all the ground it lost last Thursday, with the single unit kicking at the door of 1.23… This price action in the dollar proves to me, I don’t know about you, but to me, it tells me that I was right about the book squaring, as we return to dollar selling on the first day of 2021… 
 
We’ll get to the currency roundup or Market Prices segment soon enough this morning, but when you get there you’ll notice that everything looks quite different these days… Shoot Rudy, even the Mexican peso is on the rally tracks!  
 
The Dollar Index has fallen to 89.53 this morning… It’s long been said by people who watch the Dollar Index like a hawk, that should the Index fall below 88, then the dollar won’t recover for a very long time…  Well, it certainly looks as though that’s where the dollar is headed so strap yourself in, keep arms and legs inside the vehicle at all times, and hold on, because we’re going on a ride! 
 
The price of Oil is pushing higher once again, and this morning it trades with a $48 handle… Everyone is getting the feeling that “soon” we will get back to operating an economy that isn’t attempting to walk with crutches… I’m not so sure that’s going to happen so quickly, or efficiently, so we’ll have to wait-n-see… But this renewed hope is what’s fueling the rise in the price of Oil… Oil traders are thinking that a return of demand is in the cards.. I guess we’ll see, eh?
 
The U.S. Data Cupboard gets back online this week starting tomorrow with the Dec ISM (manufacturing index), and will culminate with the Jobs Jamboree on Friday this week. I’m sure as we go along this month with the December data prints, that they will build on the negativity of the November prints, and we will see the negative affects of shutdowns, and say at home orders in some states… I got a kick out a Tweet I saw this past weekend, from the Gov. of S. Dakota… 
 
OK, so S. Dakota never shutdown their economy, they didn’t make people stay at home, and their economy remained open… Kudos to Kristi Noem Gov. of S. Dakota, for expressing her views that right now, with the mess of economies in California, New York, etc. that her state is probably the owner of the strongest economy in the Union…  
 
There are some other data prints this week that are worthy of looking to… All of them are December prints, and they include: Construction Spending, Auto sales, Factory Orders, and the ADP Employment report, along with the usual fare of Weekly Initial Jobless Claims…  
 
And to repeat, I don’t think that any of these December prints are going to be strong in any way… They’ll all show the effects of economic shutdowns, and stay-at-home orders… And IF once of these December prints do show strength, you’ll know that it was massaged, manipulated, and cooked by the number crunchers… 
 
To recap…. Chuck spoke too soon last Thursday, and book squaring probably was the culprit behind the 180 degree turnaround in the dollar on the last day of the year. It would have taken a month of book squaring to allow the dollar to have a good year, but since that didn’t happen, the dollar ended the year with its worst performance in quite a few years… Chuck goes through some of his thoughts as to what he believes is going to happen to the dollar going forward… And the dollar is right back on the chopping block this morning, as the overnight markets have gone right back to selling dollars… Gold is up $35 in the early trading today! 
 
For What It’s Worth…. I was going through Bloomberg on Sunday, and then Ed Steer’s letter came through, and he highlighted an article I has just read on Bloomberg! It’s about how Gold just put in a very good year’s performance in 2020, and it can be found here: https://www.bloomberg.com/news/articles/2020-12-31/gold-heads-for-best-year-in-a-decade-with-dollar-on-the-ropes
 
Or, here’s your snippet: “Gold posted the biggest annual advance in a decade after a tumultuous year, with gains this month aided by the dollar’s decline to the lowest since April 2018.
 
Bullion hit a record in August as investors feared an unprecedented wave of stimulus by central banks and governments would lead to currency debasement and inflation. Holdings in bullion-backed exchange-traded funds set an all-time high in October.
 
While prices ebbed as the roll-out of vaccines injected optimism into financial markets, the dollar’s continued weakness has helped support gold into the year-end.
 
Looking ahead, there’s little consensus from Wall Street’s biggest names on bullion’s direction. Morgan Stanley sees gold and other precious metals coming under pressure as financial markets normalize and longer maturity bond yields rise. Meanwhile, HSBC Holdings Plc sees gold climbing higher on continued uncertainty.
 
Much of gold’s performance next year will depend on whether the eventual return to normality is outweighed by ongoing stimulative policies. Led by Chair Jerome Powell, the U.S. Federal Reserve has signaled that its ultra-easy monetary conditions will last throughout 2021. Efforts to pass further fiscal stimulus through the Senate have hit another roadblock.
 
“Gold’s main drivers — weaker U.S. dollar and low real interest rates — are likely to provide support” even as vaccines are distributed around the world, said Vasu Menon, executive director, investment strategy, at Singapore-based Oversea-Chinese Banking Corp. With the lower-for-longer Fed, “it is too early to throw in the towel on gold,” he said in an e-mail.”
 
Chuck again…. And let us not forget to mention that what ever the price manipulators decide to show us what’s up their sleeve… will directly affect the price of Gold, short term… or in spurts, as we’ve seen in the past!  
 
Market Prices 1/4/21: American Style: A$ .7776, kiwi .7207, C$ .7878, euro 1.2294, sterling 1.3658, Swiss $1.1370, European Style: rand 14.5820, krone 8.5080, SEK 8.1875, forint 293.69,  zloty 3.5972,  koruna 21.2576, RUB 73.92, yen 102.91, sing 1.3173, HKD 7.7523, INR 72.98, China 6.5295, peso 19.77, BRL 5.1924, Dollar Index 89.53, Oil $48.53,  10-year .92%, Silver $27.33, Platinum $1,102.00, Palladium $2,498.00, and Gold $1,934.20
 
That’s if for today… Well, my beloved Mizzou Tigers Basketball team suffered their first loss last week, but then came back strong on the road to defeat Arkansas… Let’s hope they bottle what they put together that last game for the rest of the season… Well, I’m here in my winter home, where it has been sunny and warm, since we arrived last Wednesday…. I love it! I sit outside by the ovean, in the sun soaking up Vitamin D, reading a book, with my ear buds in listening to music… It doesn’t get much better than that folks! Well, I had a setback with my blood sugar count. I didn’t succumb to the temptations of all the sugary sweets at Christmas, but I did intake a few more carbs than usual, so it’s back to a strict diet now… UGH! We watched a nearly full moon rise out of the ocean a couple of nights in a row. The orange orb, that then lights up the sky… The Rev. Al Green takes us to the finish line today with his song: Love and Happiness….  I love the intro of that song! I hope you have a Marvelous Monday, and Please Be Good To Yourself!
 
 
Chuck Butler
Creator & Editor of:
A Pfennig For Your Thoughts