The U.S. Dollar broke down sharply last week.
And that means there should be really good news for gold soon…
I know many have been frustrated with this sector. But with the recent Fed decision, it looks to me like it’s set to move higher in 2022.
Let me explain…
Take a look at this chart of the buck (USD)…
On the chart, we can see that the dollar has lost the support of its 50-day moving average (MA – blue line). The 9-day exponential moving average (EMA – red line) has crossed below the 50-day MA, and the 20-day EMA (green line) is on the verge of doing the same thing.
This is all quite bearish for the buck. And since precious metals often trade counter to the dollar, it’s a big reason why gold and silver rallied last week.
This is a trend that should continue for most of 2022.
But, here’s the curious thing…
The Fed is expected to raise interest rates several times this year. And rising rates are supposed to be bullish for the dollar. At least, that’s what all the economic textbooks say.
Yet, the chart of the buck looks bearish.
My guess is the strength of the dollar over the past few months was due to the anticipation of the Fed embarking on a tighter monetary policy. And now that it appears the Fed is going down that path, the dollar is being “sold on the news.”
And, a falling dollar is bullish for gold and silver.
Of course, gold and silver – and gold and silver stocks – have been hugely frustrating to trade over the past year. And, that frustration has likely turned off many participants.
But that’s what the financial market does. It shakes folks out of positions before it makes the “logical” rally.
I can’t tell you the number of logic-based trades I’ve taken a bath on before the market finally came around to my way of thinking – it’s in the hundreds.
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I am HUGELY bullish on gold and silver stocks.
I’ve been bullish on the sector for most of the past year. And while I’ve had several profitable trades, I’ve also had several losers as well. But, I’ve never wavered from the logic of my bullishness.
The U.S. government has over $30 trillion in debt, and it has an estimated over $200 trillion in unfunded liabilities.
No one in Washington D.C. has any desire to balance the budget. They’re only arguing about how many more trillions of dollars in debt should be incurred by the next spending plan.
That’s all bearish for the dollar and bullish for the price of gold.
Meanwhile, the gold stocks are trading at their lowest relative valuation in my lifetime.
Their balance sheets are in better shape than ever. They’re profitable with gold at $1,800 and silver at $23. They’ll be ridiculously profitable at even higher gold and silver prices.
And (due to the frustration of the past year) most folks have been shaken out of the sector…
Yet, I’m confident that anyone who has the courage to buy into the gold sector today – and then close their eyes for a year – will wake up to enormous gains.
Buying the gold stocks today looks to me a lot like buying oil stocks in September 2020 – but gold stocks are much cheaper.
Best regards and good trading,
Jeff Clark
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