Stock Markets, Dollar, Gold, and Commodities
By JC Collins
Now that the Dow has posted the biggest quarterly gain since 1933 you would think the constant jibber jabber surrounding imminent doom would settle down. The fact that 1933 was the year when America’s recovery from the great stock market crash of 1929 began could be telling of additional upward movement in the months and years ahead.
But using a process of accepted logic by applying similar trends over different time periods and circumstances does not make for a reliable analysis or data based conclusions. This works both ways, whether we’re attempting to support collapse scenarios or new highs.
At the same time we have gold producing its best start in 42 years. This is more symptomatic of a depreciation in the dollar in the first quarter. Dollar goes down and gold goes up. Or so the theory goes.
Another interested thing just happened as well. China strengthened the renminbi by the most since 2005.
All the while the Fed is making cozy with China and revealing an open strategy of developing an equilibrium between changes to the dollar and the Chinese currency. Federal Reserve interest rate increases are now being openly timed and scheduled to accommodate Beijing’s fiscal realities. This waxing and waning of monetary strategy and movements between the US and China has been discussed here on POM as an important process within the multilateral monetary transition.
As some readers have recently stated (and provided links), demand for the renminbi is beginning to increase and infrastructure development loans denominated in RMB are being structured as I type. This fits with the descriptions detailed in the post Renminbi Demand is About Explode.
It would be my expectation that the USD will continue to depreciate throughout the year (though it may have a temporary rebound in the second quarter) and the renminbi will continue to strengthen as Fed rate increases are timed to accommodate the expansion of RMB liquidity throughout the remainder of the year.
At some point gold will see reversals and begin its descent into sub $1000.00 territory. This will be mainly attributed to the rise of the RMB and the balancing of reserves between multiply currencies. Though I had originally anticipated a further depreciation in gold before now, the conclusion I put forward remains the same, based on the fundamentals of the multilateral mandates and transition.
Copper, after a good start, has experienced some downside, but I expect that this will reverse into a more permeant trend at the mid-point of the year as the infrastructure develop picks up pace. Other commodities, such as iron/ore and zinc will also begin to see additional upside this year.
There are still many moving pieces in play as we progress through the year. The broader use of the SDR as expressed by both the IMF and G20 will play an important factor in how much of the above information trickles down into the functioning monetary system.
Still, we can expect that movements in exchange rates and foreign exchange reserve diversification will be the largest points of the transition throughout the remainder of the year.
The world’s stock markets will fluctuate some more as additional monetary policy normalization takes place between now and the end of the year. The likelihood of a complete market collapse is narrowing and diminishing with each passing month.
It has been my contention all along that we will not experience this massive collapse, and that there would remain a level of volatility as the monetary framework progresses on its path of transition and transmutation. – JC