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

The Beatdown Has Begun by Gerardo Del Real

The Beatdown Has Begun

by Gerardo Del Real

 

For months I’ve explained that eventually all central banks will lose the faith of investors.

I’ve explained that large amounts of capital rushing out of bonds will search for yield and that small amounts of that capital will be the catalysts for sustainable new highs in the price of gold and silver.

This process will take years to play out but the process is in motion and it’s critical to understand that of the three major central banks, the U.S. will be the last to be forced into the structural reforms that all three central banks will have to undertake.

Before those reforms however, the same economists, analysts, newsletter writers, speculators, and investors who have been calling for the death of the dollar and the U.S. stock market for years are in for yet another beatdown courtesy of the dollar.

A beatdown which has begun. The dollar is up almost 4% in the past two months and hit a seven-month high on Wednesday.

A recent Bloomberg article outlined how firms such as Alcoa Inc. cite a stronger dollar more often than any other impediment to profit growth, according to an analysis by Pavilion Global Markets Ltd.

dollar back in focus

That same article showed that of 25 conference calls held by companies through October 12, 2016, at least 15 mentioned the stronger dollar as a threat to earnings growth.

Dollar strength is a trend that I believe will accelerate and cause the break in the bond markets. A rising dollar increases the likelihood in major sovereign defaults among emerging markets that issued their debt in dollars.

If the Fed doesn’t raise interest rates quickly, it’ll be forced to make interest rates negative in the next recession.

But if the Fed does raise interest rates, it’ll cause a massive decline in asset prices and add to the likelihood of a U.S. recession. So how does it play out?

There will be volatility, a lot of it.

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