The US$ is entering a bear market, so to speak. While in the near-term it remains strong against its latest rival, the Euro, this new currency must take its share of foreign reserves from trading partners as a reserve currency. It will come at the expense of the US$, of course, as US dollars in reserve by all countries that trade with Euroland are liquidated and replaced with the Euro. An amount that will eventually exceed 1 billion US$.
Add the excess supply of US dollars from above, along with a money supply that has been growing in excess of US domestic product growth by between 4%-6% over the past 30 months, and you have an extraordinary environment for weakening US dollar demand, and hence, US dollar strength. These things take time to resolve themselves (often, a lag of 2-3 years,) but are now appearing and it will take at least as long to fully play out.
Therefore, the weakening dollar will reflect itself in higher commodities prices, including the precious metals, for quite sometime without any increase in demand for these commodities. Why? For the simple reason that almost all purchasers of commodities throughout the world buy commodities in only one currency, the US$. Of course, the rise in commodities prices as a function of a weakening US$ will begin to feed upon itself producing rising demand, especially in the historic monetary commodities gold and silver. This additional fuel will produce commodity prices higher than the fundamentals would ordinarily suggest.
I expect the forces that resulted in higher gold and silver prices during the period between 1971-1980 to move as inexorably. It will require another Paul Volcker sometime in the distant future to contain these forces. However, it is only my concern that the chronology move accordingly to produce the result I anticipate:a bull-market for Hecla.
Hecla wants to move to $7, or better, in the next few months, but must break $9.50 to confirm a bull-market trend for the stock. I do expect to reach $7+ sometime in March 1999, really!
My best to you,
T.V.H. |
