Pro Perspectives 4/4/23

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April 4, 2023
Over the past few weeks, we’ve talked a lot about the fundamental threat to the dollar.
That scenario continues to unfold, and the value of the dollar is (as a result) in decline.
Here’s the latest look at a chart of the dollar index …

As we’ve discussed, a lower dollar tends to mean higher commodities prices. 
On that note, today gold traded back above $2,000.  This is back in record territory.
The last time gold was here (at $2,020) was March of last year.
Importantly, the demand for gold, at that time, was driven safe-haven flows.  Russia had invaded Ukraine, and global capital flooded into what is known to be the safest and most liquid parking place:  gold, the dollar and U.S. Treasuries.
All went up in value.  
This time, the threat is different and so is the market outcome.  Gold is back to above $2,000.  U.S. Treasuries are in demand, and moving higher.  But the dollar, the historic safe-haven currency, is sliding.  
What’s going on?  As we’ve discussed in my daily notes, the dollar’s role as the world’s reserve currency is being challenged. 
This eventuality has been talked about for a long time.  The time appears to be here.  And with the challenge to the dollar, fiat currency is broadly being challenged.  Gold is reclaiming it’s historic role as a store of value — evidenced by record accumulation of gold last year by global central banks, to rebuild their allocation to gold as a reserve asset. 
But if the dollar is being shunned, why are dollar-denominated Treasuries continuing to move higher (market rates lower)?  The answer:  Domestic demand! 
For a long time, we’ve heard the doomsdayers suggest China would dump our Treasuries, send U.S. rates soaring, the economy collapsing and the dollar collapsing.  It hasn’t happened, even as China has, indeed, been selling Treasuries.  Who’s buying?  Japan.  And more recently, American depositors
With the bank fallout of last month, depositors are leaving near zero yielding bank deposit accounts, for relative safety AND a 3.5-4% yielding Treasury security.