Yakpoo's Bullion (Dollar) Forecast

Discussion in 'Bullion Investing' started by yakpoo, Jun 9, 2021.

  1. yakpoo

    yakpoo Member

    Other than small, slow fluctuations in supply and demand, the price of PMs is generally the inverse of the denominated currency. In other words, PM prices directly reflect changes in currencies. Gold, for instance, can increase in price in Dollar terms while simultaneously falling in price in Yen terms.

    To predict the forward price of Gold (in Dollar terms), we must predict the forward price of the Dollar. Typically, that's a hard thing to do. However, the Fed looks to be getting painted into a corner...making a Dollar event not "if", but "when".

    A little over a year ago, we shut down major portions of the U.S. economy and productivity fell precipitously. The helicopter money (stimulus) was paid for with U.S. Treasury debt. Since the bond market can't absorb all this debt at once, the Fed buys the excess supply. A year ago, the Dollar Index was over 100. Today, it's holding steady at 90. A year ago, the Fed's balance sheet was $4 Trillion Dollars. Today, the Fed holds $8 Trillion Dollars.

    The Dollar appears to be in distress. It appears as though the Dollar is in a tailspin and the Fed is keeping the Dollar steady by buying up excess U.S. Treasuries (stairstep pattern 1st chart).

    The Fed has been making noise about easing bond buying and letting rates climb. If the Fed does this, inflation will spike and interest rates will climb. The Fed will walk the line as long as possible, but pressures are building.

    If/when the Fed tapers its bond purchases, the stock market will likely contract as commodity prices advance. The speed and magnitude is all up to the Fed, but if it gets out of control, changes could be fast and considerable.

    I think we'll be fine through this Christmas season and likely through the 2022 midterm elections, but after that...PMs (commodities in general) could be the place to be.

    FED-Assets.PNG DXY.PNG
     
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  3. -jeffB

    -jeffB Greshams LEO Supporter

    GENERALLY.

    From 2010 to 2011, silver's price more than doubled; my dollars did not lose half their buying power elsewhere during that time.

    From 2011 to 2016, silver's price dropped by two thirds. I know my dollars didn't triple their buying power elsewhere during that time.

    It certainly seems like all this money-printing must result in rampant inflation Any Day Now. Thing is, it's seemed that way for most of my adult life. Common sense hasn't proven very useful here.
     
  4. yakpoo

    yakpoo Member

    1. 2010-2011...Speculative bubble.
    2. 2011-Present...return to the mean via increased margin requirements and Fed intervention.

    The sudden drop in productivity and run-away debt over the past year is an entirely different animal. The Fed is being forced into a corner.

    This reminds me of a thread I began around 2010 called "Free Money". The U.S. Mint announced a change in policy for the release of their annual sets. Previously, annual sets went on sale around July and sold well into the next year. In 2010, the Mint announced that it would only sell annual sets during the year of their mintage.

    This policy change set up the inevitable scenario where one year would be on sale for a limited time, resulting in much lower sales than normal. This finally happened in 2012...and I gave everyone the "heads up". This is another "Yakpoo Heads Up".
     
    Last edited: Jun 9, 2021
    OldSilverDollar likes this.
  5. -jeffB

    -jeffB Greshams LEO Supporter

    But those were anything but "small, slow fluctuations in supply and demand."

    It's often, perhaps always, hard to distinguish a "speculative bubble" from a "long-delayed, long-expected secular increase". In the same spirit, "buying the dips" is risky, because the only way to distinguish a "dip" from a "collapse" is in hindsight.
     
  6. yakpoo

    yakpoo Member

    Granted, when I spoke of supply/demand, I was thinking about fundamentals. There's always going to be speculation and it would be foolish to predict speculation.

    My point is that Dollar fundamentals are being eroded and when we jump (or are pushed) off this escalator, prices could move quickly. Even in the best case scenario, we're heading towards another "Taper Tantrum" last seen in 2013...only worse. At this point, there's really no way to avoid it. Just look at what's happening in housing and commodities now. Smart money is getting a head start.
     
  7. FryDaddyJr

    FryDaddyJr Junior Member

    you have to realize that panicking idiots is a cottage industry.
     
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  8. mpcusa

    mpcusa "Official C.T. TROLL SWEEPER"

    its hard to go by historical values especially with Covid interference, you have
    to use your best guess.
     
  9. yakpoo

    yakpoo Member

    There are basically two (2) ways to artificially stimulate an economy; Monetary stimulus and/or Fiscal stimulus. I'm afraid that the increased Fiscal stimulus is painting the Fed into a corner and they're afraid of losing control of short term interest rates...as happened briefly in September of 2019.

    The Fed controls short term rates with Repurchase Agreements (Repos) and, since 2013, with Reverse Repurchase Agreements (Reverse Repos). Repos are short term loans against U.S. Treasuries and Mortgage Backed Securities (MBSs) which adds liquidity to the banking system. Reverse Repos are the opposite. Banks lend money to the Fed in exchange for U.S. Treasuries and MBSs which withdraws liquidity from the banking system. Reverse Repos by banks is what's known as a bank "parking their excess reserves at the Fed".

    It seems to me that the large influx of Fiscal stimulus (Helicopter Money) is causing a rise in demand for Reverse Repos. Reverse Repos is the only place banks can get any return at all on their excess reserves. This increases demand (by the Fed) for U.S. Treasuries...pushing interest rates (and the Dollar) lower.

    This leads to two (2) likely scenarios...

    1. The Fed stays in the Treasury market as long as it takes to absorb the Fiscal stimulus...pushing interest rates and the Dollar lower.

    2. The Fed begins tapering its bond purchases, pushing up interest rates and pushing the economy into recession.

    I suspect the Fed will try to walk that tightrope as best they can, but the Fed is being pressured keep their foot on the gas and continuing their bond purchase program. There seems to be a belief that "Inflation is the path to Prosperity". Having lived through inflation in the 70s, I can say with certainty that no one was feeling "prosperous" then.

    Anyway, this is my "forecast" for what it's worth...that the trend is for a weaker Dollar, higher inflation, and a rise in bullion prices...at least until the next inevitable recession. If China invades Taiwan with no U.S. response, the Dollar will weaken further.
     
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  10. FryDaddyJr

    FryDaddyJr Junior Member


    How much do wars cost? Bush/Cheney war cost us a lot more than an infrastructure bill that actually helps us/
     
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  11. yakpoo

    yakpoo Member

    It's not a question of the cost of war vs. infrastructure. Fiat currencies (currencies not convertible to commodities such as Gold or Silver) are nothing more than Zero interest bonds and their "value" is directly proportional to the country's ability to repay their debt with something of value.

    The "value" of the Dollar is its status as U.S. Legal Tender. In other words, if you want to do business with the U.S., you have to settle accounts in U.S. Dollars. That's what creates the value of a U.S. Dollar...the strength of the U.S. to project power and defend the business interests of it and it's allies. After WWII, that's what changed the world's reserve currency from the British Pound to the U.S. Dollar.

    A Chinese attack on Taiwan (a U.S. ally) without a significant response by the United States, would erode the value of the Dollar and strengthen the Yuan...(imo).

    Fiat currency is not supported by any physical commodity, but by the faith of its holders and virtue of a government declaration.
     
    Last edited: Jun 14, 2021
  12. Douglas Ross

    Douglas Ross Member

    I completely agree with your sentiment and mechanics; however the timing I am not so sure about. Personally, we need to get past the late fall of this year in order to move on to a debacle in 2022/3. Late this year could get very nasty, particularly if supply chains stay as disrupted as they currently are.
     
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  13. yakpoo

    yakpoo Member

    I don't have a crystal ball so I try to evaluate probability. As long as the Fed continues to juice the punch bowl, it's "laissez le bon temps rouler". I think the stage is set for a very good Christmas season...assuming everything else stays the same.
     
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  14. mpcusa

    mpcusa "Official C.T. TROLL SWEEPER"

    It’s great to be optimistic, it’s hard with the
    pandemic to have any idea on the future so
    let’s all cross are fingers :)
     
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  15. Douglas Ross

    Douglas Ross Member

    True, so long as something " extra" economic; i.e. political doesn't spoil the juice.
    :dead::)
     
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  16. yakpoo

    yakpoo Member

    I'm much less optimistic once the government bond purchases are withdrawn. This is turning into a Ponzi Scheme that would make Bernie Madoff blush.
     
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  17. FryDaddyJr

    FryDaddyJr Junior Member

    China is just the next empire to fall away. with a declining birth rate and a rising middle class it's doomed to change. The cost of keeping land once you;ve conquered it is also another factor. Bin Laden won, for example.
     
  18. crazyd

    crazyd Active Member

    Faith in the government issuing the currency. I often think that is less dependent on what the Fed is doing (printing/debt) versus what as been happening on the ground in the last few years (social, political, violence, poverty, etc).
     
  19. Brian Calvert

    Brian Calvert Active Member

    Do you watch any economist on youtube ? The guys that tell the truth ? The Truth about the paper short contracts controlling the prices, Basel 3, blah, blah...
    A lot of it is garbage, but the fundamentals of what they say are true. Gold and Silver price is 95% manipulation. It has no PRICE DISCOVERY as it did even 20 years ago. Today, the BUllion banks, thru the comex, approved by the CTFC do whatever they want.

    One has too notice the drops in the middle of the night for no reason at all ? Or how Silver gets smashed down each morning. We have added 40% too the money supply over the last 1.5 years and nothing to the price of Gold. Silver is still 50% away from its all time high in the 1980s

    No one can predict the outcome until the mass FED, Bankster corruption is stopped. We cant do a thing as they continue and answer to no one. People dont like to think that is happening in this country, yet it is, thus they just go into denial about it. Much easier too look at he other way and go with the flow.
     
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  20. yakpoo

    yakpoo Member

    I agree 100%. We can't keep pushing every bad economic event into the future via monetary hocus pocus. Money is a store of labor. As the money supply expands, the value of labor contracts. And yet, these policies are "sold" as helping the poor. The results are the exact opposite.
     
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  21. Douglas Ross

    Douglas Ross Member

    Well said!
     
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