I have been talking with Neils Christensen, editor at Kitco news, for several years about the dollar, gold, and my read of the capital markets more broadly. We had a chance to discuss recent developments yesterday. I began my career at a small newswire, and Kitco reminds me of it. Here is the link to the 12.5-minute discussion.
Initially, when gold moved above some technical levels around $1400 a year ago, I had recognized the potential toward $1700. It fit in with my dollar view. My first book, Making Sense of the Dollar (Bloomberg, 2008), anticipated a major dollar bull market, but it had increasingly looked like it was over, and my view turned about a year ago. The coronavirus threw me for a loop in more ways that one, but it seemed to give the dollar bull move one more push.
The low and negative yields make gold attractive, and the falling dollar is another plus. Many who ascribe unique attributes to the yellow metal see it as a store of value in the face of debt monetization and a hedge against the risk-taking underwritten by central banks.
If the third big dollar rally since the end of Bretton Woods is over and interest rates stay low for a few years, then gold can go beyond the $2000 target that I suggest in the interview with Neils. Similarly, the $1.18-$1.20 target I offer for the euro is still the early days of the dollar's down cycle.
A couple of months ago, dollar bears were a minority, but now it seems likely nearly everyone and their sister has turned bearish. I hosted a panel discussion at Trade Tech recently, and sentiment was universally dollar negative. It has percolated up to the mainstream press where the rash of articles about the dollar's collapse, amid claims it will soon lose its major reserve status, and allusions to the end of "dollar hegemony" are part of the early turn in sentiment. As I often remind, the euro reached $1.60, sterling was above $2.00, and the Australian and Canadian dollars were above $1.0 at the low point of the dollar's last cycle, and its role in the world economy did not change.
Occam's Razor dictates regarding the dollar's down move as a benign cyclical development until proven otherwise. The fact that the world economy may fare a bit better with a weaker dollar is nice to appreciate, but of all the things that move the $6.6 trillion a day foreign exchange market, what the world may wish for is not among them.