He Loves a Weak Dollar, He Loves a Weak Dollar Not

Traders and investors that follow gold and the U.S. dollar were participants in a virtual roller coaster ride this week as conflicting versions of the current administration’s policy on the U.S. dollar surfaced.

Statements made by Stephen Mnuchin, the Treasury Secretary, on Wednesday sent gold prices sharply higher, and the U.S. dollar index sharply lower. The dollar index lost roughly 1% in value, and gold gained over $22 per ounce on that day alone. This happened immediately following a comment made by the Treasury Secretary where he noted, “a weak dollar is good for trade.”

This was followed by comments made by President Trump in an interview with CNBC on Thursday. He stated that he wanted to see a stronger U.S. dollar. The president was quoted as saying, “The dollar is going to get stronger and stronger and ultimately I want to see a strong dollar.” He also mentioned that the Treasury Secretary’s comment was taken out of context.

The comments made by the president during the interview conflicted with earlier statements, and more importantly were the opposite of the perceived monetary policy of this current administration.

In April of last year, the president said that the currency (dollar) was “getting too strong” in an interview with the Wall Street Journal. That caused the dollar index to drop by a half percent in under 15 minutes.

The president’s comments in his interview yesterday sent gold prices plunging and the U.S. dollar index higher. These polar opposite statements have confused investors and analysts as to the actual desired policy of this current administration.

In an interview in MarketWatch, Michael Kosares of USAGOLD, said, “The Trump administration offered “two different versions of the [dollar] policy simultaneously and the market will be in a guessing game as to which one is the actual policy. But “given the dollar’s performance over the past year or so, it looks like a weaker dollar is the market reality, at least for now.”

Even with the president’s comments on Thursday about a strong dollar, the upside bounce of the dollar index was short-lived and lasted only a day. In today’s trading, the dollar index lost -0.30 %, and spot gold gained about two dollars on the day.

More important, on a weekly basis gold gained value, and the U.S. dollar index continued its steep decline. It seems that it is likely that both the U.S. dollar and gold will continue on their current trajectory next week, with gold gaining value, and the U.S. dollar continuing to trade lower.

Wishing you as always, good trading,