Categories: General Market Commentary / Precious Metals
Topics: General Market Commentary / General Precious Metals

2017 “Wild Card” Will Send Gold Soaring by Jason Simpkins

Nov. 29, 2016

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by Jason Simpkins

If you’re looking for the big contrarian play of 2017, look no further than the dollar.

Conventional wisdom says the dollar will strengthen as the Fed raises rates and central banks elsewhere around the world keep their respective currencies down.

But that may not be the case.

More and more analysts are now arguing that we could in fact see the opposite.

That’s the camp I’ve been in for the past few months. And Jim Paulsen, chief investment strategist of Wells Capital Management, is the latest to join.

Speaking to CNBC, he called the dollar "the big wild card in 2017."

"I think the dollar's going to go down, not up," Paulsen said. "There [have] been five major increases in the funds rates since the 1970s, and every one of them, when the Fed raised rates, the dollar came down."

Take a look at the last two monetary tightening periods — in February 1994 and June 2004 — and you’ll see Paulsen is right.

In both those cases, the dollar strengthened before the first rate hike, but then weakened by around 8% in the next six months. The dollar index then remained consistently below its level on the day of the first rate hike for the next two to three years.

It’s the old “Buy on the rumor; sell on the news” canard.

More recent history bears this out, too.

Here’s a look at the dollar index over the past year...

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