"The debasement bros were right!" lamented a post on X last night. "Can't believe this move in the dollar. Truly incredible what we are witnessing."
And yes, we've seen a dramatic drop this month. The dollar index was at 99 two weeks ago. It slid below 96 this morning. In the foreign-exchange world, that's a big move. But today's level is not at all extreme. The real extreme was last year, when we were at 110. Back in the mid-2000s, the dollar was routinely trading in the 80s!
So yes, there may be more dollar weakness to come, and no, you don't need to chase this insane move in precious metals in order to defend against the collapsing world order, or anything like that. Did you see gold this morning? Every time I look, it's jumped above another round number. Today, it's above $5,300 for the first time.
It's a compelling narrative, I know, that "central banks are dumping dollars for gold, and so should you." But these charts making the rounds that show their gold holdings soaring is because the price of gold itself has been soaring, so even if they didn't buy another ounce, their "holdings" are spiking in value. And the dollar has been dropping since this time a year ago.
The main people buying precious metals now are retail traders, who continue to pile into the "GLD" ETF, among others. Just be aware of that. Precious metals have gotten "meme-stocked," in other words. But at some point, the metals will stop going up, and start going down or sideways.
The dollar, meanwhile, is undergoing a reset for different reasons. It does not mean people are "Selling America." It does not mean our reserve currency status is in danger. It does not mean Treasury yields will spike. "A weaker dollar loosens global financial conditions and--if anything--increases demand from emerging markets for Treasuries," strategist Robin Brooks wrote in this nice explainer today.
In fact, a weaker currency is usually such a desirable outcome that nations are usually fighting each other to keep their currencies from being too strong. So it's little wonder that the president shrugged it off when asked about the sliding dollar last night. "I think it's great," he said, implying it will be harder for China and Japan to weaken their currencies against the dollar now to gain market share.
The simplest reason for a sliding currency is usually expectations of central bank rate cuts. Those might have increased here because of weak data, like the nasty drop in consumer confidence yesterday, or because of the expectation a new Fed chair will be more dovish. The Fed happens to be releasing its next rate move this afternoon, though no change for now is expected.
At some point, if the dollar keeps sliding, or drops even more sharply than what we've seen so far, it could raise import inflation and eventually catch more ire from Washington. We seem to still be a ways from that point, though.
See you at 1 p.m!
Kelly