The Three Themes of 2018

46
Thu, Jan 4, 2018 - 10:44am

Beginning in late 2016, we began to question what we termed The Generally Accepted Narrative of 2017. This allowed us to accurately forecast rising precious metal prices last year. For 2018, we will generally rely upon three, overriding themes and we discuss them in detail today.

As a recap, what was GAN2017? We first spelled it out in a formal post on January 17, 2017. You can read it here: https://www.tfmetalsreport.com/blog/8103/questioning-generally-accepted-...

From that post, the five primary tenets of GAN2017 were:

  1. Major US deficit spending will promote economic growth
  2. This economic growth will allow The Fed to hike the Fed Funds rate 3-4 times
  3. Rates on the long end will rise, too, as "the bond bubble bursts"
  4. All of this growth and higher rates will prompt a huge rally in the dollar
  5. And the US stock market will charge toward 25,000 on the Dow.

So, how did this turn out?

  1. Economic growth as measured by GDP looks to come in at around 2%. Trump's only political win came with the tax cuts of late December. Nothing done on infrastructure or healthcare.
  2. The Fed did, in fact hike the FF rate 3 times.
  3. Long rates fell and the bond bubble definitely did NOT burst.
  4. "King Dollar" did NOT return and the POSX fell by over 10%.
  5. The Dow topped 25,000 for the first time in history just this morning.

For the purposes of this site and precious metal investing, points number 3 and 4 were the most important and, by having rates and the dollar fall, Comex gold rose over 13% on the year...its best annual gain since 2010.

So, what's next for 2018?

As you've already heard me mention, 2018 will be defined by three general risks. How these play out will dramatically impact the dollar, the bond market and the precious metals. The three risks are:

  1. Political Risk -- By late summer of this year, attention will turn to the coming mid-term elections in the US. If the Democrats are poised to regain control of Congress, speculation regarding a move to impeach President Trump will rapidly intensify.
  2. Geo-Political Risk -- If you're paying any attention at all to global events, then this needs no further explanation. Whether it's the possibility of renewed war on the Korean Peninsula, conflagration in the Middle East or actual Hot War between NATO and Russia, geo-politics have the potential to greatly unsettle global markets in 2018.
  3. De-Dollarization Risk -- The global pace of de-dollarization is clearly quickening. Later this month, a yuan-denominated crude oil contract will begin trading in Shanghai. Later this year, a ruble-denominated gold contract will begin trading in Moscow. These and other events will provide a clear challenge to US dollar hegemony in 2018.

In 2017, the mainstream financial press blindly pumped GAN2017 without any regard to other possible outcomes. We here at TFMR were first to proclaim GAN2017 a sham and we were all rewarded with gains in gold and silver. Now in 2018, where in the media do you see ANYONE discussing the three risks laid out above? Instead, it's all about the cryptos and Dow 25,000. Well, I can assure you that just as we were generally correct about GAN2017, we're going to be correct about the Three Themes of 2018, too. Just give it a while to play out.

To that end, the Comex metals have charged back overnight as the POSX has resumed its fall. Though the FOMC was able to talk up the USDJPY and thus pump the Dow to 25,000, the broad-based POSX has given back all of its gains and now resides again under 92. As it breaks down further next week and falls to and through the 2017 lows near 91, maybe some folks on CNBS and BBG will start to notice?

This dollar weakness has pushed the CRB commodity index to the 195 breakout point. Commodity prices are going to be a BIG story in 2018 and these rising prices will add spillover support to gold, silver and the mining shares throughout the year.

For CDG and CDS today, the good news is the overnight rebound after the thrashing they took post FOMC yesterday. CDG fell all the way to 07 last evening while CDS hit .02. The fact that I currently have 18 and .24 should not be written off as a simple bounce. The underlying trend, technical and CoT structure certainly argues for higher prices in this initial phase of 2018. I was hoping to do some buying on a pullback to .80 but, unless there's some sort of BLSBS-related bloodbath tomorrow, I'm not sure I'm going to get it.

As I close, I see that we have further extended to $1319 and $17.26. This is great news so go have a great day!

TF

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  46 Comments

Jan 4, 2018 - 10:48am

check this

How many times have we mentioned that The Fed and Trump both want a lower dollar? Well, here's some mainstream coverage of that general idea: https://www.bloomberg.com/news/articles/2018-01-04/dollar-drop-could-for...

billhilly
Jan 4, 2018 - 10:52am
Thor
Jan 4, 2018 - 10:56am

GAN2018

Thanks, Turd. Geo-political may be the #1 risk.

renozep
Jan 4, 2018 - 11:06am

Reno Turdite Lunch Invite Tues. 9th

Please join local Reno NV Turdites and friends for lunch at the Manhattan Deli in the Atlantis Casino in Reno, NV. This coming Tuesday the 9th at 11:30 AM. The Atlantis is a big casino on Virginia St. at Peckham Drive. The Manhattan Deli is on the main floor- easy to find.

I'll wear a black SF Giants baseball cap. Usually about 3 to 8 of us.

We meet about once a month. This is very free form and informal. We talk Turdite topics: TFMR, stacking, the markets, miners, numismatics, show and tell, local resources, you name it ...

Feel free to PM/ e-mail me if you have questions.

Dennis Travers - renozep

Jan 4, 2018 - 11:12am

Yuan oil contract

If the mideast oil producers are willing to supply the oil, we may see some significant changes. The US would be stretched to the limit start new wars in all mideast countries. And if hte Saudis sign up with China (did they do this already), US motives would be quite clear if our friend suddenly becomes our enemy.

This will be an interesting year. Thanks for the thumbnail summary, Turd. This may be a good article to post on my wall and re-read regularly, comparing it notable to world events each month.

RickshawETF
Jan 4, 2018 - 11:30am

Fifth!!

Yeah, baby. That's what I'm talkin' about!

Think I'll take the celebrating on down to my LCS, since silver seems to still be on sale today . . .

fluxplus
Jan 4, 2018 - 11:35am

James Bullard speaks at 1:30 PM EST

St. Louis Federal Reserve Bank President James Bullard to give presentation on the "U.S. Economy and Monetary Policy" at "Meltzer's Contributions to Monetary Economics and Public Policy" in Philadelphia, with audience Q&A.

CC Horses
Jan 4, 2018 - 11:56am

@Blackwatersailor

Thanks for the fuel pump tip. I usually keep a minimum of 1/4 tank, but that is a helpful reminder. Thank You

US Debt Clock now at $ 20,600,075,979 21 trillion here we come

Also shows paper to Silver ratio as 179 to 1

shows paper to Gold ratio as 75 to 1

Sorry could not copy & paste here.

lakedweller2
Jan 4, 2018 - 12:19pm

Silvercrest

SVCMF

Take a look at the last months performance and do some due diligence. It appears to be moving sonewhat ahead of most of the pack. Not investment advice...just own it and it is doing better than most of my others.

OOOBuck
Jan 4, 2018 - 12:22pm

Hopefully you didn't begin or add to a portfolio

of Canadian pot stocks yesterday. After weeks of stellar performance, the best of the best pot stocks decided to take a rest and puked out average losses of 15% at one point. Now recovered about 10% of that.

In retrospect, we were overdue for some profit taking. It is a volatile sector but I wouldn't trade it for silver at the moment (and that's saying a lot!).

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