Palisade Research - Tue, Jan 23, 2018

Watch Out Below: USD is About to Break - Metals are a Buy

article title text over a dollar sign image breaking in half

The US Dollar has collapsed over 11% since this time last year. . .

Look at it yourself.

1-year USD Index line chart from January 2017

That's an ugly drop - especially for the world's reserve currency.

And we expect it to continue dropping. . .

Here's why.

In 2014 the Federal Reserve began reducing their Quantitative Easing (basically money printing) program. Janet Yellen also started raising interest rates for the first time since 2008.

The Dollar soared in value because of this. . .

Over the next 3 years, the Dollar increased 30%.

And what happened to commodity prices?

They imploded.

Oil. . .

Gold. . .

Copper. . .

All of them tanked.

Looking at the chart below you can see the correlation between the USD and commodities.

In 2014 commodity prices (blue line) collapsed while the US Dollar (black line) rose.

line chart compares prices for the Bloomberg Commodity Index vs. the USD Index, from January 2009

Why does this correlation exist?

Because when the dollar increases in value, everything else decreases in value.

That's why gold is so important - It's a barometer of the dollars health.

Think of it like this. . .

When the price of gold rises, it's because the dollar got weaker and that it now takes more dollars to buy that same ounce. And when the price of gold falls, it's because the dollar increased in value and it needs less to buy the same ounce.

This is why us at Palisade Global were deploying cash at a record pace in the resource sector during the 2014-2016 commodity bear market.

Because we knew that the dollar's rise would eventually turn.

And that's exactly what we saw in 2017.

The USD peaked - traded sideways - and is now in steep decline. . .

USD Index line chart with technical trend lines, from January 2009

After 3 years of a dollar bull market and a commodity bear market - the tables are now turning.

Just take a look at the prices of metals such as copper and zinc - all are going through the roof.

We just published a piece last week talking about how Palladium just hit an all-time high.

If you haven't yet started investing in high quality resource sector stocks, don't worry.

There is still time to buy, but it's running out faster than many realize.

Once the US Dollar Index breaks below 90 - which could happen any day now - then dollar bulls will retreat.

And it will only snowball downhill from there.

Don't be surprised to see the USD drop another 20% from here. . .

That would put it back to levels it hasn't been in since 2011.

I should also remind you that's when the price of gold was over $1,950 an ounce and silver was over $40 an ounce.

Food for thought.

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