Saturday, August 10, 2019

The Renewed Eruption of the Currency Wars Will Ensure Gold and Silver Move Higher

Gold is trading solidly above the $1500 mark at the time of writing and I believe we are only just getting started, the currency wars are back in full swing and they are going to be more intense than ever.

The United States government, ironically labelled China a currency manipulator for the first time since 1994, marking a severe uptick in their rhetoric against the Chinese government as the trade wars continue to spiral out of control, with seemingly no end in sight.

Many simply waved this move off as nothing more than what it initially appeared to be, jawboning with no true ramifications behind it, however others see it as a blatant threat by the US administration against China, as the last time this language was used 25 years ago, was when China was placed on a currency blacklist.

Some were surprised by this move, as they see it as an overreaction, fearing that we have now moved into another phase of the ongoing currency wars that have been bubbling behind the scenes for years, currency wars that are now in plain site for all to see.

Unfortunately, this should come as no surprise to anyone, as President Trump stated back in 2016 that he fully intended on labelling China a "currency manipulator", a statement that was laughed off, until now.

This move comes on the heels of a Fed interest rate cut, in which the Fed Chief Jerome Powell lowered rates by 0.25%, citing fears in a weakening global economy and ongoing trade wars.

Of course, China is far from the only currency manipulator in the world, as countries are constantly "racing to the bottom" in an attempt to lower the value of their currencies, increasing their competitiveness on the international markets, by artificially making the price of their goods lowers.

In addition to this, lowering the value of ones currency drastically cuts down on the true cost of the national debt, of which the United States now finds itself roughly $22.5 trillion dollars in the hole.

Savers be damned. Retirees be damned. The race to the bottom must and will continue on.

This race to the bottom is one of the many reasons why gold and silver are posting such impressive gains recently, as the markets are finally coming to the realization that many of us in the precious metals community reached years ago. The printing presses are not going to be slowed down, they are not going to be stopped.

This is not just limited to the United States, but is a global phenomenon, as no country can afford to be left behind in the currency wars. 

On Wednesday, three additional countries joined in on the action, following the United States lead. 

Central Banks in India, Thailand and New Zealand all lowered interest rates in a move that shocked and surprised the markets, signalling just how rapidly things are deteriorating.

This, in addition to the moves made by China on Monday, in which they allowed the Renminbi to fall through a key threshold level, earning them the "currency manipulator" title, sent markets spinning throughout the week, only just stabilizing on Thursday.

Expect rate cut after rate cut, by country after country.

Already the Fed has been under renewed attack by President Trump, who took to Twitter to state the following;

"As your President, one would think that I would be thrilled with our very strong dollar. I am not! The Fed’s high interest rate level, in comparison to other countries, is keeping the dollar high, making it more difficult for our great manufacturers like Caterpillar, Boeing, John Deere, our car companies, & others, to compete on a level playing field. 

With substantial Fed Cuts (there is no inflation) and no quantitative tightening, the dollar will make it possible for our companies to win against any competition. 

We have the greatest companies in the world, there is nobody even close, but unfortunately the same cannot be said about our Federal Reserve. They have called it wrong at every step of the way, and we are still winning. Can you imagine what would happen if they actually called it right?"

Sadly, if people think the "worst is over", then they are badly mistaken. We have entered into a whole new phase of the currency wars, in which country after country is going to be racing to see who can spin the quickest down the drain.

The markets and the President are going to continue to lean on the Federal Reserve, who is likely to cut rates multiple times more, even before the year is out.

Other countries are simply going to follow suit as the two economic powerhouses that are the United States and China continue to battle it out.

The currency wars are here, they are full blown and gold and silver are going higher in response to the madness that is erupting all around us. Much higher.

- As first seen on the Sprott Money Blog