The gold price has traditionally moved inversely to interest rates, but Lobo Tiggre, founder and CEO of IndependentSpeculator.com, has noticed a change he believes is worth noting.
Speaking to the Investing News Network on Tuesday (June 29), he explained that the yellow metal has recently become more responsive to strength in the US dollar.
“Usually it’s the nominal rate as a proxy for real rates that does that mirror image with gold … it’s the most explanatory variable over the last 50 years since the separation of gold and the dollar,” he said.
“But very recently it’s this year begun doing much more of that mirror action with the dollar as represented by the DXY dollar index, (the) dollar on foreign exchange,” Tiggre continued.
Explaining the reason for the change, he suggested that gold and silver futures traders around the world were previously using nominal rates as a proxy for real rates, but are now looking elsewhere for cues.
“They understand that real inflation is changing, they understand that adjusting by monthly CPI isn’t good enough on a day-to-day basis if inflation is changing. And so I think that a lot of traders are starting to go directly to the dollar instead of using real rates as a proxy or as an indicator of where the dollar will be, since interest rates aren’t telling an accurate picture right now.”
Instead, traders are starting to look directly at the dollar, which Tiggre is bearish on — although he noted that the dollar bear thesis will take some time to play out.
“What I’m saying is that this shift to looking at gold more directly in terms of the dollar is actually very near-term bearish, because there’s a lot of story right now, narrative, that looks good for the dollar,” he noted. “In the near term that’s bad for gold, but I think (in) anything other than the near term, what’s being done in the US is much more harmful to the currency.”
In terms of where he’s looking among the gold stocks, Tiggre noted that given the broad-based opportunities available, he’s “uncharacteristically” looking at major miners as well as smaller companies, as long as they have a compelling value proposition.
Watch the interview above for more from Tiggre on gold. You can also click here to visit his website and read his full thoughts on gold, interest rates and the dollar.
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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