The Hated Dollar Resurges. But Why?

Betting against the dollar remains a favorite sport.

The dollar has done – as it so often does – the opposite of what was expected. Last December, the Fed raised its target for the federal funds rate and indicated that this time it was serious about tightening and that it wouldn’t flip-flop anymore. Two weeks later, the dollar, after surging much of 2016, turned around and headed south in defiance of the Fed.

On September 8 intraday, the dollar index (DXY), which tracks the dollar against a basket of currencies, hit the lowest point since December 2014. In a little over eight months, it had dropped 12% from its intraday peak on January 3. But that was it. Since September 8, it has bounced nearly 3%. The chart shows the weekly movements:

Since early September, the dollar has bounced against the euro, the yen, the Canadian dollar, the Mexican peso, and the Chinese yuan between 2% and 6%. Based on the dollar index, the dollar has now risen four weeks in a row, though this morning, it is taking a breather. September 8 also coincides with the recent peak in the gold price expressed in US dollars — seen another way, the dollar has since risen against gold.

So why the dollar’s bounce?

One theory, among many, is that currency exchange markets – after blowing off the newly hawkish Fed for months and expecting it to flip-flop any moment, as it had done relentlessly starting in 2014 – are considering the possibility that the Fed might not flip-flop this time.

One more rate hike in December is likely. The Fed indicated after its last meeting that three more rate hikes next year seem likely, which would bring the Fed’s target range for the federal funds rate to 2% to 2.25%, up from around 0% not long ago – “low” inflation, no problem.

But more importantly, in September the Fed announced the start-date of the QE unwind, after having announced the mechanics and amounts in June. The QE unwind has now commenced. And the members of the FOMC voted for it unanimously.

With the QE unwind, the Fed will gradually destroy the money it had created during the phases of QE. It had watered down the dollar during QE with this money creation, now it’s going to reverse the process.

Rate hikes impact short-term yields. The QE unwind is designed to raise yields of longer-dated securities. Rising yields would make dollar-denominated bonds more attractive for international buyers stuck with ultra-low yields in other currencies, and when the plow into dollar-denominated securities, they also create demand for the dollar – or so goes one of the theories.

At the same time, additional political risks are creeping into the euro scenario, with Spain trying to repress Catalonia’s drive for independence, and with a right-wing party in Germany surging out of nowhere a few years ago to become the third largest player in parliament, thus weakening Chancellor Merkel’s grip.

So the dollar index bounced, but it remains down over 9% from its intraday peak on January 3.

Betting against the dollar remains a favorite sport for hedge funds, at least as of October 3 when there were $17.4 billion in short positions against the dollar, according to data from the Commodity Futures Trading Commission, though that had edged down from the prior week, and positions might have changed more by now.

The weakening dollar over the first three quarters this year has helped corporate earnings of those companies with overseas exposure, which includes most of the S&P 500 companies. When the dollar weakens, their sales and profits in other currencies are translated into more dollars, which makes the results look better on paper. A strengthening dollar will do the opposite.

What everyone wants to know now is this: Was this bounce just a blip, or was it the beginning of a reversal with stamina to move “higher for longer,” as they might say in the new jargon. The one-way trade against the dollar for the first eight months of the year seems over, and now it gets complicated.

Other central banks have also started to walk back their monetary policies. The Bank of Canada has raised rates twice this year and will likely raise one more time. The Bank of England has indicated that it might raise its rate, likely to happen in November. The ECB, which has already reduced its QE by €20 billion earlier this year, may announce more backpedaling after its meeting on October 26. The Fed leads, other central banks follow.

But next year is a wild card. Fed Chair Janet Yellen’s term expires in February, and President Trump has not yet announced whether he’d reappoint her or whom he’d appoint to replace her. There are three more vacant slots on the seven-member Board of Governors, and no one knows whom Trump will appoint to fill them. This new Fed that emerges next year, however, could be off the chart. Read…  The Fed will be a New Creature Soon, and No One Knows What It’ll Look Like

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  95 comments for “The Hated Dollar Resurges. But Why?

  1. TJ Martin says:

    Betting against the dollar short term ? Ehh .. questionable…. perhaps .. though one minor blip barely regaining parity hardly qualifies as a comeback

    Betting against the dollar long term though ? A guaranteed winner especially if you’re shifting over to the ever eternally stable CH franc

    • Robert says:


      I’ve been purchasing CHF with USD for the last 2 months. Physical Gold and Silver much longer.

      I will not stand by and watch my retirement savings melt away any longer.

    • Smingles says:

      “though one minor blip barely regaining parity hardly qualifies as a comeback ”

      The dollar has been strengthening since 2008.

      “Betting against the dollar long term though ? A guaranteed winner especially if you’re shifting over to the ever eternally stable CH franc”

      Wrong on both accounts.

    • Mike says:

      Amen. I think that the habit of many people in foreign countries, the traditions that have been established over the past decades mean that we will have some time to prepare for the monetary shock that will follow the dollar’s loss of world reserve currency status.

      Nevertheless, the ties between Russia and Saudi Arabia, Russia and China, etc., indicate that many major players are looking to shift away from total dependence on the U.S. dollar. If there is some shock, e.g., if our morons in congress decide to refuse to raise the debt limit and default on U.S. Treasuries, the habitual confidence that is holding the dollar up will be destroyed.

      We are like that cartoon of Wylie Coyote, who runs off the cliff and keeps on running on thin air, until he realizes that he is doing that and falls. It is just a matter of time before the fall.

      Fortunately, we produce food and raw goods, so we will not starve. I just hope that Americans finally bring out the legal equivalent of tar and feathers and deal with the banksters, after our economy collapses.

      I think most banksters would look great in federal prison jumpsuits. They deserve to get done to them what they have been doing to the American people.

  2. Gershon says:

    Gold, which surged more than $10 today, isn’t buying the Fed’s supposed “hawkishness.” As far as dollar strength, this is in the context of a basket of currencies being relentlessly debased by central bank “stimulus.” As such, the dollar is merely the least syphilitic hooker on the street corner, it would appear.

    • cdr says:

      If you hate yours, and you should, send them to me. I’ll deal with them.

    • Wolf Richter says:

      Gold had a good two days, but it’s still down $62 from a month ago. So at this point, I wouldn’t draw any conclusions about gold not “buying the Fed’s supposed hawkishness.”

      But don’t worry, over the longer term, gold price movements are not correlated to Fed rate hikes. When the Fed started hiking rates in July 2004, Gold was around $400. The Fed then raised rates from 1% to 5.25% over the next two years – and guess what? Gold started soaring. But it continued soaring even after the Fed cut rates to zero and started QE in 2008/9. Gold didn’t peak until 2011 by which time ZIRP and QE were raging. So I would say over the longer term, gold moves independently from Fed policy.

      • Gershon says:

        Valid points, Wolf. I would counter, however, that in 2004 – 2006 fundamentals still mattered, whereas after 2008 the Fed’s massive intervention to prop up and levitate “the markets” – more accurately described as asset bubbles – resulted in stock and asset valuations that were completely divorced from any underlying fundamentals. Gold is also a heavily manipulated market, with bullion banks buying and selling non-existent “paper” gold to move the price in a predictable channel. This manipulation is most pronounced in the immediate aftermath of Yellen or one of her flying monkeys talking up their (supposedly) pending rate hikes any time gold goes over $1300/oz, which makes me suspect collusion. In addition, the financial media has touted cryptocurrencies as an alternative to “barbaric relic” precious metals in a bid to move the herd in that direction. Now, however, as geopolitical uncertainty rears its its ugly head, gold seems poised to reclaim its historic role as a safe haven and hedge against central banker debauchery of the currency and monetary malpractice.

        • cd says:

          the bernanke Put

        • Frederick says:

          Thank you

        • Gershon says:

          Gold is surging again this morning, due mainly to geopolitical risk, I’m guessing. Usually when it breaches the $1300 trend line various Fed mouthpieces invariably start jawboning about supposedly pending rate hikes, although I’m sure that’s purely coincidental and not an attempt at price suppression or currency manipulation for their insider pals.

        • J.M. Keynes says:

          – I think “Gershon” sees a conspiracy behind every tree.
          – It’s much more down to earth. Gold rises when REAL interest rates are Negative (think: 1970s, 2000s and in HyperInflation) but is lackluster when REAL interest rates are Positve (think: 1980s & 1990s).
          – But one also has to keep an eye on the production costs of gold. In that regard gold is a commodity as well.

      • d says:

        Gold has a huge fear factor, also anybody who brought at any of the alleged dips at over the 1000.00 level is stuck and very worried. Along with a lot of miners.

        Hence the, Miners, russians, chinese, and speculators, along with the bug propagandists, all push Harder the closer it gets to that level. They know if it brakes that support level it many not stop until it test it true bottom, which may be sub 250.00.

        A stronger $ helps the SA, AU, and russian/chinese owned mines a lot.


        “Betting against the dollar remains a favorite sport for hedge funds, at least as of October 3 when there were $17.4 billion in short positions against the dollar, according to data from the Commodity Futures Trading Commission, though that had edged down from the prior week, and positions might have changed more by now.”

        There was a time when most of the open interest $ longs, were in fact short covers.

        Now that situation seems to have reversed.

        At least until the “New FED” 2018.

        If Yellen goes, there will be a period of instability, that may be longer than usual for a change in CB head.

      • Mike says:

        While gold is a barbaric relic, like quetzal feathers, cocoa beans, glass beads, or other such items that were historically used in trade, it is the barbaric relic that the majority of the producing world seems to value: e.g., China or India. It cannot be easily manufactured, like diamonds, emeralds, etc.

        If they valued tulips or quetzal, I would have to consider valuing those too. Unfortunately, in an irrational world, whatever the irrational value is what has value.

        I personally think that the U.S. must have “lent” out the U.S. gold reserves to banksters and others to enable them to profit. That is the only explanation that I can find for their reluctance to return Germany’s gold and for Germany’s demand in the first place. See–they-must-know-something-we-dont.html

        See also I think that gold presents a real threat to the U.S. dollar.

        Thus, to prevent the Saudis or others seeking to be paid on gold, the U.S. has been manipulating the price of gold. I think that the “Federal” reserve, a bankster cartel, is protecting the interests of its banksters first, but it must keep the value of the U.S. dollar up. Otherwise, it will be more difficult for them to drain the U.S. taxpayer’s money.

        • Wolf Richter says:

          The CNBC article you linked is from 2014 and totally outdated. Germany has since repatriated 743 tonnes of gold from New York and Paris, the last part earlier this year. There have been no problems with the transfer of gold.

    • TJ Martin says:

      Unfortunately tis well beyond appearances having become fact

      The dollar like everything else in this ‘ so called ‘ economy having devolved into a Potemkin Village / Emperors New Cloths travesty ages ago never to fully recover regardless of the Hype & Hyperbole being bandied about .

      • chip javert says:

        TJ Martin

        So let’s play a little game: you now have $50B of liquid personal assets….what currency are you going to invest them in?

        Chinese real estate?
        Anything having to do with Euros?
        USA Treasury notes?

        See the problem? USD doesn’t look so bad when compared to the competition. Gershon’s comment about “least syphilitic hooker” is in the ballpark.

        • Gershon says:

          Maybe I should’ve said the dollar has the most fingers left in the leper colony. Not as icky….

  3. Quite Likely says:

    I guess I’m an unsophisticated observer, but why would “destroying tons of dollars makes the remaining dollars more valuable” be anything other than the obvious common sense prediction?

    • JZ says:

      The common sense will make you lose to the pros if you bet on the same currency market with them. I myself is no expert on currency market but I can give you a counter argument than the common sense that “scarcity makes things valuable”.
      Money, is NOT a consumable commodity. It facilitates economy. By destroying the money supply, you may destroy the economy and if you are a currency trader, would you want to hold a currency that you can NOT invest because of destroyed economy or would you want to hold currency of another investable country whose economy is more promising? While you are thinking “i want to hold cash for a deflating economy because i can buy more”, the pros are going for currencies that can generate more returns in a country with better economy.
      I am NOT suggesting managing economy by manipulating money supply is the right thing to do. What I am saying is that when it comes to money, and economy, things are more complicated than common sense.

  4. OSP says:

    Wolf, this is off topic, but does relate to interest rates – I hope you’ll indulge me.

    A friendly argument with a friend: I say the economy is not really growing, that corporate earnings are flat – if they were actually profitable, why would they borrow money for dividend payments and sock buybacks.

    He contends that it is a smart move on their part, because if they repatriate overseas cash to fund these things, they’ll incur huge tax liabilities.

    Honestly, this sounds reasonable.

    What’s your take on this?

    • cdr says:


      Stock buybacks are a form of price manipulation. The price goes up as the denominator decreases. This causes the value of stock options to rise, making company insiders wealthy when the options are exercised, legally. The company borrows at low cost to fund this. It’s otherwise known as a scam, yet perfectly legal.

      In the past, cash repatriations were used for stock buybacks, rather than borrowed funds. More to come, I suspect.

      It’s a smart move because a few get wealthy off the earnings of the corporation.

      • Ed says:

        And they used to be illegal for this very reason. The SEC blessed them, I understand in 1982.

        I feel like lots of things that were bad for the median American’s share of the pie got rolling in the early 80’s.

    • Wolf Richter says:

      Not “repatriating” earnings registered overseas is reasonable from a tax-avoidance point of view. That’s all.

      That money is already in the US, invested in US Treasuries, US corporate bonds, etc. See Apple. It’s just that this money cannot be used for corporate purposes, such as buybacks, without triggering a tax bill.

      But most companies, including IBM, borrow money for share buybacks because they don’t have enough cash flow to buy them otherwise – not because their cash flow is hung up overseas.

    • MB732 says:

      OSP, Also see WS article from Sept 24 “Corporate Mirage”.

    • Willy2 says:

      – Stock buybacks make sense in two ways:
      1) Interest paid on those loans are tax deductable. Bringing in cash from “abroad” means that they have pay a tax (35% ??)
      2) In a lot of cases the interest paid on those (short term ??) loans is lower than the dividend yield on those stocks. But with stocks at the elevated levels of today the dividend yield has shrunk even more.

      But there’s also a flipside. When yields on those corporate bonds rise then those companies will have to pay higher interest rates on those loans when they want to roll them over into new loans.

      • Willy2 says:

        – Correction: It should be:

        “- Borrowing money to pay for stock buybacks make sense in two ways:”

    • QQQBall says:


      Interest Rates. Higher rates on USTs and other debt instruments would attract foreign investors who would have to convert to USD first. Additionally, any carry trade currency with very low IRs, would be borrowed, sold and converted to USDs and the new dollahs utilized to by Bonds

  5. Kent says:

    I will go with QE unwind. Selling treasuries into the market for dollars should force up yields and reduce the quantity of dollars. And all other interest bearing bonds should notch their way up accordingly. Making US bonds very attractive relative to Europe and Japan.

    Maybe Mr. Market is just doing his job and anticipating the future.

  6. OutLookingIn says:

    I find a more globally accurate measure of the US dollar, is it’s performance against it’s benchmark of physical gold. With a secondary backing price in crude oil.
    To do this successfully you must use a global list of the most important currencies. Then compare each to the other (versus gold & oil) and how that comparison stacks up against the US dollar.
    Gold’s performance is up, against virtually all currencies with the exception of the US dollar, where it has been wallowing sideways in a general uptrend since the beginning of the year.
    The same can be said for oil, since the price of gold & oil tend to mirror each other and are highly correlated.
    So where does the US dollar draw it’s recent strength from? It’s perceived safe haven status? Higher interest rate? Fed tightening? Improving US economy? Or could it be just the calm before the storm?

    • Thunderstruck says:

      “To do this successfully you must use a global list of the most important currencies. Then compare each to the other (versus gold & oil)”

      Wouldn’t the sale of oil requiring a purchase of $US (petrodollars) kinda’ skew this comparison? Sure, if you were to remove the $US from its status as the World Reserve Currency and allow unfettered trade across the board – then your comparison may be a better bellwether of currency value used in trade. I do realize that there are some countries that have narrowed their trading policies to avoid the use of the reserve currency and keep the BIS out of their transactions.

    • Frederick says:

      How is it accurate when the gold market is regularly manipulated lower by huge sales of paper gold ? There is NO market by the way

      • OutLookingIn says:

        Yes. Valuation is the key.
        You are correct in that there are no markets, just interventions.
        Therefore no price discovery.
        How do you place a true valuation on the US dollar?
        You can’t. No one can.
        So it remains to use the next best tools.
        Real money – gold and what the entire globe runs on – oil.
        Only 60% of global trade, is now conducted using the US dollar.
        It’s reserve status is under attack from all quarters.
        China is about to activate their yuan based/gold backed oil futures contract system. This will be a major game changer.

      • d says:

        Is not regulated lower ,it is Manipulated up, the sales suggesting that gold is worth this and more as there are huge sales at this level. The transfer of the paper is regularly between the left and right hands of the same groups.

        The Physical, paper, and futures, gold market data, needs to be separated.

        Then you will see there a few large “Physical sales” and the majority of physical buyers (Outside india where it is still money, and Dubai which supplies much of the Indian imported gold) are consumers, Not Holders.

        The Physical price, is driven up, Deliberately, by the speculative and massively manipulated paper markets.

  7. chris Hauser says:

    i’ve heard before that strength is price has something to do with buying interest.

  8. Smingles says:

    I said it back in the summer on here that the dollar sell-off was getting overdone and to look at going long dollars.

    Not for fundamental reasons, mind you– just that the trade itself was getting very crowded, and after going on a tear from 2014 – 2016, there was no good fundamental reason for it to reverse so dramatically as it did in 2017. Nothing actually happened this year policy wise that would justify the dollar being down 10-12%. If anything, what little central bank action we’ve had would’ve justified a stronger dollar the whole year.

    So from a traders perspective, I think this was to be expected; a crowded trade with no fundamental backing always seems to be a no-brainer once the bandwagon really gets going, as it did earlier this summer. Contrarians should have been on high alert.

    I think a more important question isn’t whether the last few weeks of dollar strength were the blip, but whether the first 9 months of dollar weakness were the real blip, and we’re about to embark on another leg of strengthening. If that’s the case, it doesn’t bode well for the global economy, but at this point it will probably take multiple years to play out. Too early to tell. In the short term, I think the dollar will weaken slightly over the next few days/weeks, before strengthening to finish the year.

    Given the size and scale of the FX markets, truly fundamental trades take months and even years to pan out. Look at a chart of the EUR/USD with a 10-year horizon. There’s no clear evidence that we’ve ever escaped the spiral of the GFC, in my opinion. We may very well still be part of the same deflationary long-USD trade, and like I said above, this year’s weakness might be the blip, and not the other way around.

    • d says:

      “Given the size and scale of the FX markets, truly fundamental trades take months and even years to pan out. Look at a chart of the EUR/USD with a 10-year horizon. There’s no clear evidence that we’ve ever escaped the spiral of the GFC, in my opinion. We may very well still be part of the same deflationary long-USD trade, and like I said above, this year’s weakness might be the blip, and not the other way around.”

      Only 10 years, bit narrow.

      GFC spiral, no we haven’t.

      $ bottomed after QE 3 and hasn’t changed its overall trend since.

      I remember it as I picked where it would flip, live.

      We must wait until till we see what 45 does to the fed before getting ahead of ourselves.

      • Smingles says:

        “Only 10 years, bit narrow.”

        10 years conveniently includes the GFC, which was a major regime change in the functioning of the global economy. I’m not that interested in what happened before that, because it’s largely irrelevant.

        “$ bottomed after QE 3 and hasn’t changed its overall trend since.

        I remember it as I picked where it would flip, live.”

        The dollar bottomed in 2008. It “double-dipped” back near the lows in 2011. QE3 ended in 2013, which certainly seemed to accelerate the dollar, but the wheels had already been set in motion.

        “We must wait until till we see what 45 does to the fed before getting ahead of ourselves.”

        It doesn’t matter. Trump and the Fed are largely irrelevant here. This is much bigger than either of them, and largely relates to the function– or perhaps more aptly– malfunctioning of the global economy, which despite insistences from Central Bankers, has never come close to recovering from the GFC. It’s not on track to, either.

        Yellen is repeating the same exact play Bernanke did on his way out. Growth and inflation were right around the corner in 2013… so QE3 was ended, and the “taper tantrum” erupted, before bond markets realized it was a ruse. Fast forward to 2017, growth and inflation are still… allegedly… right around the corner, and Yellen is embarking on her swan song. In both cases, there were glaring contradictions to their reasons for tapering. Yellen, much like Bernanke, will have been proven wrong again. The Fed may very well hike more, but this does little beyond the short term.

        Rates are going lower. The dollar will strengthen. Wouldn’t be surprised to see the whole thing culminate in GFC 2.0. Counterintuitive? You bet. But the alternative, the mainstream narrative, that growth and inflation are right around the corner and that rates must go up to anticipate a spike in inflation have been so laughably wrong for the last seven years that I don’t know how people can continue to peddle that nonsense.

        • d says:

          ” bet. But the alternative, the mainstream narrative, that growth and inflation are right around the corner and that rates must go up to anticipate a spike in inflation have been so laughably wrong for the last seven years that I don’t know how people can continue to peddle that nonsense.”

          Rates dont need to raise to counter inflation, At this point they need to raise, to possibly get some. Based on experience FED and Other rates will plateau around the 3%, Which just happens to be the pre madness norm. Part of the Madness being caused by using Interest rates instead of other mechanism to attempt to control inflation.

          Growth is around the corner??

          in what sector of the economy.?? Little ting increments of REAL Profit join and move upwards. This is logical in a Capitalist system, not wrong or greedy.

          Without Real wage and job growth (Other than Mc Job’s). There is no REAL profit to move upward

          The only current growth is in the top, transferring paper assets amongst itself. In a game of musical chairs, in which unless there is real change elsewhere in the economy, the music will soon stop. And a great shortage of chairs will be observed.

          QE will be done again at some future point in the US, as it is a more palatable alternative than massive deflation and long term serious depression. However not how it was done this time unless the same results are required. Which is highly unlikely as it dint work how it was wanted/needed to this time due to Administration inaction not FED Policy/Actions..

  9. sinbad says:

    It’s hard to know what to make of things these days, so much of the official data appears to be fake. Things like return on investment seem to no longer apply to valuations. In the world I grew up in, if a nation debased its currency, the value of that currency would decline, but not anymore.

  10. J.M. Keynes says:

    – Higher rates to push the USD higher ??

    – From 2003 up to 2006/2007 (short term) rates rose and the FED raised rates multiple times but in spite of that the USD kept falling.
    – The inverse happened in the 1st half of the 1980s. Then US rates came crashing down but in spite of that the USD went through the roof.

    • J.M. Keynes says:

      – Between say 1985 and 1995 the USD kept falling down. In that same timeframe US rates first went up (in the 2nd half of the 1980s) and then US rates came down (between 1990 and say 1994/1995).

      – Similar story between 2001 and mid 2008. US rates went down from 2001 up to say late 2003. Then from 2004 up to the 1st half of 2007 rates kept rising (both short & long term). From say mid 2007 to mid 2008 rates started to falll. But in spite of all those movements the EUR/USD (main component of the USD index) kept rising. From about 0.81 in 2001 to 1.60 in mid 2008.

      – And people keep thinking that rising US rates is a force pushing the USD higher ?

      – Oil went up from about $ 20 in 2001 to over $ 140 in mid 2008. a sevenfold increase for US consumers. But thanks to the doubling of the EUR/USD the price of oil in Europe went up from $ 20 to $ 70 (only), thanks to the rising EUR/USD.

      • Smingles says:

        In classical economic theory, higher rates should send the dollar higher.

        Classical economic theory is wrong, and hasn’t been right for decades on this topic.

        Yellen and most central bankers still abide by classical theory, but you’ll notice in recent speeches have hinted at the fact that *something* is amiss and they just can’t put their finger on it…

  11. interesting says:

    And I never understood why some hate the dollar. What’s the alternative? Aren’t all central banks still debasing all currencies?

    And the Chinese Yuan is no where near a reserve currency and if it somehow becomes one what happens to the Chinese export based economic model? Wouldn’t a strong currency destroy that?

    Don’t get me started on the crypto’s ….. all I ever hear from those bulls is what they are worth in $$’s

    • RD Blakeslee says:

      Cryptos and gold share one characteristic: Both are inherently limited in the absolute quantity that can be produced.

      Fiat currencies, e.g the dollar, are not.

      • chip javert says:

        RD Blakeslee

        And you believe “Cryptos…are inherently limited in the absolute quantity that can be produced” for what reason? Because some guy with a laptop in lower Slobovia tells you to trust him and his digital currency?

        Gold is inherently limited because iwhat little of it there is , is expensive to mine; digital currencies have no, none, zip, zero, nada inherent limitations.

        • d says:

          “Gold is inherently limited because iwhat little of it there is , is expensive to mine”

          Should read

          Gold is inherently limited because it is expensive to mine in the low yield mines mostly operated by russian and chinese mining speculators.

          They are operating mine3 that only yield 3 or 4 grams a ton (Less than 1/8Th Oz) with recover costs of US $ 900 + per Oz.

          russian and chinese mining speculators are the two biggest gold bulls groups out there.

          If it goes under 1000.00 an OZ they are dead, unless their currencies, and the Zar, drop against the $.

        • QQQBall says:


          All-in mining costs are much higher. Also difficult to get a good handle on b/c when $POG drops, miners high grade their production… part of reason why they report much higher costs when $POG rises.

          Grades are declining. Chris Martensen on Youtube from conference in Madrid covers this.

        • RD Blakeslee says:

          “… for what reason?”

          A blockchain unit, e.g. a bitcoin is, to use your explanation re gold: “because it’s expensive to mine”. It gets exponentially more so as its discovery algorithm heads toward infinity. In other words “there’s so little of it”.

          Laptops in lower Slobovia… Silly!

  12. Realist says:

    What about emerging markets ? Maybe there is starting to appear some shakiness there and investors pull out funds from EM and move into the USD as being maybe the ‘cleanest dirty shirt’ at the moment. For exmple Turkey’s Lira has offered quite a ride for the last few days

  13. ppp says:

    The dollar is surging because the money supply is contracting. Not surprising, since we have entered the next leg down–VERY down.

    • Smingles says:


      There is a DEARTH of dollars. The dollar will rise. Won’t be surprised to see it be a central part of the next global crash.

  14. Cashboy says:

    The US dollar will go up when the economies of other countries start to slow.
    The economies of countries are slowing because the western people have less available credit.
    When you think your local currency is at threat, you exchange it to the US Dollar.
    I cannot see interest rates going up by much, if at all. Why would they want to put them up? The western government debts would cost more to finance and people with housing loans would struggle to pay them and a lot would default.

    • Ppp says:

      The parallels to October 1929 are unsettling. Worst of all, investors are misreading Fed actions: they will not bail out the market in the event of a crash. It would be impossible: it would mean creating several hundred trillion dollars in a few days They understand that very well. A huge bailout would drive everyone out.

      And anything less would alao panic people, just as when the banks said they would buy stocks in 1929/ It worked–for three days

      And what did the Fed do during the 1929 crash?

      Absolutely nothing.

      People should remember that when they say that there will be no crash because there will be a bailout. They are crazy. There will be no bailout. It would require an astronomical sum– which ITSELF would send the signal SELL.

      This last week has been eerily familiar: a wobbly market. That says a crash is imminent. It is a wobbly market which terrifies people, not a declining market.

      You are warned.

      • Thunderstruck says:

        “People should remember that when they say that there will be no crash because there will be a bailout. They are crazy. There will be no bailout. It would require an astronomical sum– which ITSELF would send the signal SELL.”

        [font/sarc, on]Oh come on, everyone knows that a bailout won’t be needed. Every risky transaction is safely covered by a CDO issued from a party ready and capable of taking on the risk! All of the counterparties have been thoroughly vetted of course, and I am sure they have the capital to back their position. [font/off]

  15. Drango says:

    China is probably pulling every trick in the book to keep the Yuan stable before the next party congress. Just look at the unnatural bounce it took today. This is no small expense and is probably enough to affect dollar availability worldwide. How long China can afford to keep up these appearances is a different matter.

  16. Lee says:

    “The US dollar will go up when the economies of other countries start to slow.

    Maybe a hundred years ago and in economic theory, but that set of circumstances no longer exists.

    For example, the Australian economy has been slowing for the past year or so and really over the past couple of quarters.

    The A$ went from A$1.40 to A$1.24 or so in that time period – a huge 10% plus run up in value. During part of that time the price of Australia’s biggest export , iron ore, also fell like a rock and then later recovered and is now falling again.

    China’s economy has been slowing and reducing its reported rate of economic growth and Australia is nothing more than a proxy for China now. (Australia has unfortunately wed its economy to China in the area of exports, real estate, education, and immigration).

    However, if you look at currency futures, you can see that the bet against the US$ in that there are huge long positions in the A$.

    Magic money (digital keystrokes) are the key to understanding markets now and if the big money decides that asset X, is a ‘good deal’ all they have to do is use a few computer keystrokes and boom – that asset goes up in value……….

    Bitcoin, copper, real estate, oil iron ore are all examples.

    Figure out where that big money is going and you’ll make a fortune. Get in the way and you’ll lose everything.

    It has nothing to do with fundamental and everything to do with algos chasing each other (the big money).

    • Lee says:

      Another example:

      “Iron ore prices have slumped by 22 per cent over the past seven weeks, yet Rio shares have surged by 10 per cent over the same period”


      “More than 72 per cent of Rio’s first half underlying earnings came from its Western Australian iron ore division.”

  17. Citizen AllenM says:

    Strong dollar is the on bet that seems to be underestimated. And commodities are not showing huge inflation. Back when I used to frequent CalcRisk- so many of the older folks were fooled by the huge amount of QE into assuming that massive inflation was the only possible course. Now when we shrink the fed balance sheet, I think that commodities will be collateral damage, but the biggest damage will happen in equities and long term bonds, along with commercial real estate, and when demand from China eases, residential real estate.

    In short, asset owners were saved, so they levered up and started reaching for yield again.

    The fact that the Fed intends to shrink the US balance sheet means they finally accept that a balance between capital and labor must happen- and they are probably hoping the Trump immigration overhaul prevails to raise wages, while lowering asset prices.

    A nearly impossible goal to achieve without huge market displacements…Bernanke flinched when he tried this, so here we go again.

    Someday this war’s gonna end…

  18. raxadian says:

    If even a third of the Dollars circulating in the World went back to the US, the economy would sink so fast you would barely get time to put on a swimsuit

    That said, less ‘imaginary money’ means the dollar will rise. You don’t need to be a genius to think that. But if course long term the Dollar always loses.

    Take a look at what could you buy with a thousand dollars ten years ago and compare with what can you buy today with a thousand dollars.

    • Smingles says:

      “Take a look at what could you buy with a thousand dollars ten years ago and compare with what can you buy today with a thousand dollars.”

      If your thousand dollars were earning interest, they’ve maintained purchasing power quite well, actually. People never seem to grasp that part. The dollar has been a very stable asset. I always chuckle.

      • cdr says:

        Smingles, 10 years ago, the computer I could buy for $1000 couldn’t even run a decent browser today. Storage would be minuscule in comparison. Wireless … what’s that?

        I’m writing this on a Dell 6330 with a i5 3320m processor and an SSD drive, with AC wireless from a gigabit access point. The laptop was an A stock off lease refurb from Dell I bought last year for about $225. When new 4 years ago it would have cost maybe $1300. The SSD cost about $75 on sale. The AC card about $30. 10 years ago 54 megabits wireless was king. My existing setup would have been worth billions back then.

        The value of the dollar is meaningless unless you put it in proper context.

        • Smingles says:

          I was merely pointing out that people are using the wrong basis when comparing the purchasing power of the dollar over time. Technological deflation– what you refer to– complicates things, in that it has nothing to do with the dollar itself.

          You should include interest, always. And THEN compare purchasing power. Nobody would ignore bond coupons or stock dividends when looking at the returns of an asset over time. Should not ignore interest, either.

          If inflation was running at 1% a year, and you could earn 1% a year at the risk-free rate, then you have maintained purchasing power. That being said, with interest rates so low, the dollar has lost a little purchasing power in the last 10 years, but overall it has been very, very steady and actually gained purchasing power over multiple decades.

  19. Gordon Gekko says:

    I love the dollar. I hate the anti-dollar(debt). If your dollars are so worthless, send them to me. Most don’t have any dollars. All they’ve got is anti-dollars.

    • Wolf Richter says:

      Just a reminder, anyone can always donate their piles of despicable worthless fiat-dollar trash to this site. We will hold our nose and take it :-)

  20. Tom kauser says:

    Japanese housewife ? The end of year squeeze being perpetrated by need for dollars supplied by Japanese savers? At time when gold has highest demand the dollar squeeze and paper gold rips your heart out?

  21. cd says:

    it actually is a good place to make a bet short with stop 94.15 or a bit higher near descending 100sma…gets back below 92.95 and down it will go..

    With renminbi tied by the waste with dollar, it would seem to have most govt. folks cheering for a bit more weakness..

    • Frederick says:

      Countries all over the world are de-dollarizing and yet these Wolf Street commenters are oblivious I’m diversified and believe the dollar index is headed ALOT lower but hey it’s your money

      • cd says:

        so far so good, I had it going to 87 if it can get thru this 91 area…
        below 92.90 is trouble for $ bulls

      • Smingles says:

        “Countries all over the world are de-dollarizing”

        No they’re not. Not even close.

        The global economy functions on Eurodollars. Period. China will, at best, be able to get a small portion of their transactions off the Eurodollar. Maybe in 100 years it will look different.

      • d says:

        You have CAD, USD (which are Siamese twins), and CHF apart from the Yen and AUD if your are in that part of the world.

        These is nothing else safe to hold apart from some of your national currency.

        Today thats just the way it is.

  22. michael Engel says:

    $VIX was deliberately suppressed and reached it’s nadir in July.
    Yesterday was the final test.
    When it was over, at 2 PM, VXX popup ( 1 min chart – 10/9/2017)
    Some wall street big titan have been accumulating a lot of VXX in the
    last month and put his shares deep in his pocket, for “better” days.
    Do you know what he knows.

  23. California Bob says:

    Selfish, side question: I’ll be selling my house in the SF Bay Area next spring. If interest rates rise, will that kill the (overheated) housing market here before I can sell?

    • Wolf Richter says:

      Housing markets don’t move that fast. The last “crash” was spread out over 4 or 5 years. At first people didn’t even realize what it was.

      But when prices start going south – and I don’t know that they will be by next spring – liquidity dries up, and it’s harder to sell anything. Housing markets are only liquid when prices are rising.

      • California Bob says:

        Thanks, Wolf. So, the lenders spot the prices dropping, and decline to lend on depreciating assets?

        • Wolf Richter says:

          That’s part of it. The other and bigger part is the enthusiasm of buyers. It disappears. They become leery. Investors stay away. No one wants to be the high bidder, and everyone wants a deal.
          Potential buyers wait for prices to drop further. Volume drops….

          It’s a lot easier to sell something in a hot market.

  24. J.M. Keynes says:

    – My personal opinion is that the USD is going to rise against every currency except the Yen and that US interest rates will be falling again in the say next 6 months.
    – I fear the day that both US interest rates (the 30 & the 10 year) go “through the roof”, the 3 month T-bill rate crashes and the USD goes “ballistic”. And that day is coming !!!
    – A USD rising is the most horrific thing that can happen to the world economy. A rising USD crushed a number of countries in South America in the 1st half of the 1980s and the 2nd half of the 1990s. Ouch & OMG.

    • Smingles says:

      I tend to agree with most of what you wrote.

      A rising USD could be the final nail in this “recovery” we’ve had since the GFC. But I don’t see that happening for at least another few years.

  25. Gershon says:

    Yellen is going to have a harder time conjuring up excuses for punting on interest rate hikes as even the Fed’s debasement of the currency continues to drive up inflation and erode Americans’ purchasing power.

    • J.M. Keynes says:

      – Rising interest rates are actually Deflationary.

    • Smingles says:

      There is no “strong inflation.”

      Inflation has been below target for something like 62 of the last 64 months.

      We’ve seen these articles for the last 5 years about how inflation is just around the corner, and it never materializes. Weak growth, stagnant incomes, low inflation. Period.

      Ping me when the economy recovers, then you might get some inflation. My guess is that will be some time over the next 10 years, after the next financial crash.

      • Paul M. Wright, Jr. says:

        Whenever I see a comment like this, I have to ask “which measure of inflation are you using?” Yes, by the government’s chosen metric, your statement is true.
        But by the operation of my household, there has been huge inflation only partially offset by the deflation in the technology components. Housing cost inflation, healthcare cost inflation and education cost inflation are all dramatically underrepresented in the government data.
        But beyond that, I find the idea of intentional inflation to be misguided at best and deliberately destructive to those without lots of assets to ride up with the inflation. Inflation does serve a purpose of allowing a government to grow out of its debts but would not the higher ground be obtained by living within our means to begin with and therefore not needing to use inflation and cause endless people without means to suffer the consequences?

      • J.M. Keynes says:

        – CPI is a joke. E.g. in the CPI Healthcare has a weighting of about 4 to 5% while total US Healthcare spending is at about 17% of GDP.

  26. Wendy says:

    I am always amused as to how us humanoids are able to explain every phenomenon with logical arguments, when markets are often illogical. To prove this, let’s take gold. Go ahead, take your best guess as to where it will be one year from today. I will say $1400, and when I look back at this post, I will have a good laugh, since nobody knows,

    Anybody else want to make a prediction for gold? Go ahead, make it official by putting it in writing in this post.

    • d says:

      With 45 in office playing his infantile games with his infantile opposite in DPRk you want to estimate gold. The most manipulated commodity with the biggest hyped fear factor, a year out and turn a $ thread into a gold bug time waster.


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