Precious metals and the US dollar took centre stage on...

Precious metals and the US dollar took centre stage on Wednesday. The DXY sank by 0.25%, while gold, silver, platinum and palladium jumped between 1.6% and 5%. Precious metals are finally beginning to look like they are returning to popularity, as an inflation hedge with the crypto currencies continuing to rollover since December last year. I am bullish on precious metals this year and see them rallying significantly as investors return to what is the world’s oldest hedge against fiat currency debasement. Near-term, the US dollar remains the key catalyst and any strength in the greenback could interrupt the rally.

However, as I wrote last year, I think the US dollar will, this year enter, a secular bear market. Wall Street is generally positive in its outlook for the US dollar citing rising interest rate differentials with the RoW, as bond prices fall and the yield curve steepens. The DXY is now resting on support after correcting from 96.5, and whilst there is no near-term evidence to suggest that the upward trendline and support level will be compromised on the downside, I think the greenback is drawing closer to an important juncture and ultimate breakdown. This outcome would be not only a positive catalyst for precious metals, but also commodities and emerging markets.

US Dollar index

Gold continues to grind higher within an ascending wedge on the two year weekly chart below. I like the fact that Wall Street is generally consensus with a bearish/neutral outlook, which in my view, could set the stage for an explosive rally this year. Precious metals are in need of a catalyst, but this might be staring investors right in the face. Inflation is fast becoming ubiquitous and as we enter 2022, there seems to be no end in sight. The Fed’s narrative of inflation being “transitory” now seems dated and a long way behind us. There is therefore a good chance, in my view, that inflationary pressures will ultimately precipitate a huge rally, this year, in what is the world’s oldest store of value.

US Dollar gold