The price of gold should be a lot higher…
At least, that’s what Raoul Pal thinks. Pal is one of the world’s top “big-picture” investors. He used to work at Goldman Sachs and run a giant hedge fund, until he made so much money that he retired.
Today, Pal writes The Global Macro Investor, a research letter read by some of the world’s biggest money managers. Recently, Pal came out in defense of gold.
You see, gold has cooled off after climbing 25% over the first six months of the year. It’s down 8.5% since August. And it’s coming off seven straight down days, its worst losing streak since 2013.
Gold’s recent selloff has many investors worried. But not Pal. He thinks investors could soon take shelter in gold…which could cause the price to double from current levels.
Today, we’ll explain why Pal is so bullish on gold. But let’s first look at why gold has been struggling.
• The U.S. dollar is soaring right now…
The U.S. Dollar Index, which tracks the dollar’s performance versus major currencies like the euro and Japanese yen, is up 5.7% since May. And that’s been a major drag on the price of gold.
Like most commodities, the dollar is priced in gold. This means gold gets “cheaper” when the dollar gets more expensive.
There are a few reasons why the dollar has done well recently:
- There was a flight to safety after Brexit. This pushed many foreign investors into the U.S. dollar and U.S. assets, which a lot of investors still consider safe havens.
- The Federal Reserve is “doing less” than other major central banks right now. It’s not printing money like the European Central Bank and Bank of Japan. It’s not cutting interest rates either.
- The Fed is also talking about raising interest rates. If the Fed does this, U.S. assets will “pay” even more than European and Japanese assets. And that’s bullish for the U.S. dollar.
• The dollar could head higher in the coming months…
The chart below shows the performance of the U.S. dollar over the past two years. You can see the dollar recently broke out of a “wedge” pattern.
This means the dollar will probably keep rising, at least in the short term.
Now, most investors think this is a reason to avoid gold. But Pal is actually bullish on gold and the U.S. dollar right now.
• Like us, Pal thinks the U.S. economy is headed for tough times…
MarketWatch reported last week: