The Three Themes of 2018
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-narrative
From that post, the five primary tenets of GAN2017 were:
- Major US deficit spending will promote economic growth
- This economic growth will allow The Fed to hike the Fed Funds rate 3-4 times
- Rates on the long end will rise, too, as "the bond bubble bursts"
- All of this growth and higher rates will prompt a huge rally in the dollar
- And the US stock market will charge toward 25,000 on the Dow.
So, how did this turn out?
- 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.
- The Fed did, in fact hike the FF rate 3 times.
- Long rates fell and the bond bubble definitely did NOT burst.
- "King Dollar" did NOT return and the POSX fell by over 10%.
- 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:
- 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.
- 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.
- 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 $1307 last evening while CDS hit $17.02. The fact that I currently have $1318 and $17.24 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 $16.80 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!