Anti-dollar trade makes outlook for gold much more bullish - CNBC

JUNE 25, 2019

BY  Patti Domm@pattidomm

  • The U.S. dollar could be at a key turning point, heading into a period of weakness, as interest rates fall and U.S. growth is no longer as strong, currency strategists said.
  • Gold is the quintessential ‘anti-dollar’ trade, and the metal’s price has recently snapped out of a range it’s been stuck in, trading at a near six year high.
  • Bitcoin broke back above $11,000 to the dollar over the weekend, as some investors look to it as an alternative, during a period of a weakening dollar.  

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The strong dollar story could be over for now, and that’s putting a shine on gold and other ‘anti-dollar’ trades.

“I’ve been bullish the dollar, but I think the bigger, long-term dollar rally is over,” said Marc Chandler, chief market strategist at Bannockburn Global Forex. “One reason is the policy mix in the U.S. has shifted. We had tighter monetary and looser fiscal policy. That’s good for a currency, and now we have the opposite. The interest rate differentials have been moving against the U.S. U.S. interest rates have been moving faster than everybody else’s.”

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The Federal Reserve’s has shifted over the past six months, from a hawkish stance of raising interest rates, to neutral, and now to so dovish it is expected to cut interest rates next month. That has changed sentiment on the dollar, and strategists now see the potential for a longer term weakening of the currency.

The dollar also has been lagging. Since Tuesday afternoon, when the Fed was in the midst of its two-day meeting, the dollar index has lost 1.6%. But at the same time, gold futures for August in the past five sessions have gained 5.6% and gold has broken through a key area of resistance. Analysts said bitcoin was also benefitting from the weak dollar, and it was up 2% Monday.

“There’s a a lot more interest in gold on a widespread basis. It’s not just tactical investors or ETF holders. it’s broad based,” said Suki Cooper, precious metals analyst at Standard Chartered Bank. “If we look at ETF flows, Friday we had the largest inflow since 2016.”

Buying of gold by global central banks has also been a factor driving the price higher, Cooper said. She said the first real boost for gold came when President Donald Trump was threatening a tariffs on Mexico as well as China, and investors feared a global recession.

Gold broke above the $1,360/$1,365 area last week, and now with a weak dollar, it has another catalyst. Strategists also said the tensions around Iran were driving investors into the safety of gold.

The dollar index was at 96.04 Monday, down about 0.2%. Heavily weighted toward the euro, the U.S. dollar was also down about 0.2% against the euro, which was at $1.1391 Monday.

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Some traders noted the move in bitcoin could be viewed as an ‘anti-dollar’ trade of sorts.

“I guess you could call bitcoin almost gold-on-steroids. It’s got some of the same characteristics. It’s not a fiat currency. It’s got its own rhythms and moves too. It doesn’t have a central bank,” said McCormick.

Bitcoin rose above $11,000 this past weekend and was higher Monday, and has been moving parallel to the decline in the dollar.

“Bitcoin is negatively correlated to USD right now. So it is benefiting from the weaker dollar trade,” notes Tom Lee, head of research and co-founder of Fundstrat Global. “I think bitcoin is regaining some legitimacy from macro and fx traders as it has staged a recovery to levels that prove ‘bitcoin is not dead.’”


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