Tuesday, August 1, 2017

IMF Says US Dollar Overvalued & Jim Rickards Incredibly Accurate Prediction on the Dollar

This article in Reuters quotes the IMF as saying the US dollar is "overvalued by 10 per cent to 20 per cent".  This despite the fact the US dollar index has already dropped by over 8% and now sits just above 93 at this writing. If the IMF is right, what will that mean for the dollar index and gold? Just below we do the math on it.

Further below, take a look at the email exchange I had in March of this year with Jim Rickards regarding the US dollar. 

"The International Monetary Fund on Friday said that the U.S. dollar was overvalued by 10 percent to 20 percent, based on U.S. near-term economic fundamentals, while it viewed valuations of the euro, Japan's yen, and China's yuan as broadly in line with fundamentals."  ----- Reuters

If we just do the math, a 10% further drop in the US dollar index puts it at about 84. A 20% further drop comes in at about 74.6. When you look at a long term chart for the US dollar index, you can see the last time the US dollar index was at 80-84 was in early 2014. Gold traded between $1250 and $1400 an ounce back then. 

Looking further, the last time the US dollar index was at 75-76 was in 2011. That was the year that gold moved up to an all time high above $1900 an ounce.

Earlier this year, Jim Rickards told me that he expected the US dollar to head into a sharper decline the last half of this year. He based that on his belief that the Fed was tightening into economic weakness. Looking at the US dollar index chart again for this year, that forecast is looking pretty good right now.

Here is the email exchange we had on this near the end of March 2017 just for the record:

My email to Jim dated 3-27-17:

"I am not a technical analysis expert by any means. However, this chart indicates to me that the USD has once again reached an important support level here around 99. It appears to me that if that fails, 95-97 would show up pretty quickly. After that, an even sharper drop looks possible. 

If you look back in time the 99 level seems pretty pivotal and the 200 day average sits just below right now at 98.44. The last time this happened the dollar held and rallied. So the next few days/weeks are probably important for direction if I read this chart correctly."

Jim's email reply dated 3-27-17:

"I expect the dollar will hold, and gold will pause to catch its breath, but only temporarily.

By late June or early July, I expect the dollar to come down a lot and gold to rally. We're just not there yet.
We'll need one more Fed rate hike in June to drive a spike in the economy. Then the Fed will flip-flop to ease again, and we're off to the races."  ------    James Rickards

If you look at the US dollar index chart for this year closely, this forecast was incredibly accurate. The dollar index did bounce up a little right after my email to Jim and held on around the 97-99 level until late June when it started a steeper drop. His email reply led to the comments I made in this blog article in the added notes section dated 3-27-17 near the end of the article as follows:

"I will add that one high credibility source I hear from now and then tells me they think the US dollar will likely hold here for now, but then likely fall later this year around the June or July time frame. So, we need to monitor this for sure and see how the dollar index does."

Gold has also started a bit of a rally here lately in early July.

This is why I and many others listen to Jim. He gets a lot of forecasts right even when he goes against the conventional wisdom (here is what many were saying back then). I just wanted to share this to document the amazing accuracy of this particular forecast Jim provided by email back in March of this year. Well done, Jim. Thank you for your willingness to share information.

Added notes: Here is the link to Jim's most recent July interview with Alex Stanczyk covering North Korea, the Fed, and Gold

For those who like to look at charts and technical analysis, here are some interesting ones concerning the US dollar index.

A thank you to Jim Rickards for this mention on his twitter feed.

No comments:

Post a Comment