Don't
be dismayed that the gold has lost 10 percent or so against the USD,
because due to the stronger dollar, gold is some 30 percent higher in
most all foreign currencies than when the surge began. The rubber band will not stretch much more.
The dollar is set for its strongest quarterly
strengthening since 1992, according to Bank of America, a good sign that
a rate hike is around the corner.
When markets expect that US interest rates
will be hiked, it typically strengthens the dollar. That's because
people rush to change other currencies into dollars — they can make more money in dollar-denominated investments. The higher demand for the US currency drives its value up.
In the past, significant dollar gains against
other currencies have pretty much happened only during periods of
extreme financial or geopolitical distress.
The last four large dollar shocks in the past 45 years have been symptoms
of huge financial events: the collapse of Lehman, Britain's panicky
ejection from the European Exchange Rate Mechanism (ERM) in 1992, the
first Gulf War, and Paul Volcker's shock rate hikes in the early 1980s.
Today's surge is already considerably larger
than the one that surrounded Lehman's collapse, although the economic
conditions are very different.
Here's how it looks in historical context:
http://www.businessinsider.com/strong-dollar-is-a-signal-of-a-major-market-event-rate-hike-2015-3
No comments:
Post a Comment