A Breakout In Gold Here Could Send Prices To Levels Not Seen In More Than Four Years

The momentum is swinging in favor of the precious metals, but can they finally follow through?

by Greg Guenthner via Daily Reckoning

Mnuchin Buries the Buck

Stocks are rising to fresh records early this morning thanks in part to strong earnings and anticipation of key economic data set to hit the wire before the morning bell.

The unprecedented performance of the major averages is the worst-kept secret of 2018. So we’re going to look beyond the Dow and S&P this morning and examine some of the powerful forces moving the markets this week.

Let’s dive right in:

1. A Dreary Dollar

Treasury Secretary Steven Mnuchin came under fire earlier this week when he said he’s not worried about the falling dollar.

To be fair, Steve is a Goldman Sachs alum. He knows how the markets operate. When he said that he’s not concerned with the dollar, he’s saying he can’t control how short-term minded traders will behave.

But the financial media didn’t see it that way. Once reporters put Mnuchin on blast, the buck dropped to three-year lows. Its Wednesday decline was the biggest one-day drop posted by the dollar in 10 months.

Trump was on damage control this time around. He told CNBC on Thursday that “the dollar is going to get stronger and stronger.”

But the damage is already done. The U.S. dollar is now off to its worst start of the year since 1987. It will probably take more than a couple of well-timed soundbites to bring it back from the brink.

2.Gold Gets its Groove Back

While politicians are pushing the dollar off a cliff, gold continues to quietly gain ground this year. The reaction we’ve seen from gold this week during the dollar selloff is expected. After all, a weak dollar is good for commodities — especially precious metals.

Gold settled Thursday afternoon just below its 2016 highs. A breakout here could boost gold to prices we haven’t seen in more than four years. Silver is also staging its own impressive comeback. The poor man’s precious metal has now posted a bounce of nearly 12% off its mid-December lows.

Momentum is swinging in favor of precious metals. Can they finally follow through?

3. Emerging Markets Stay on Top

Everyone’s talking about the amazing strength we’re witnessing in domestic stocks to start the year.

As we’ve reported, the market’s record run of low volatility has made even the smallest moves lower feel like a big deal. The S&P 500 hasn’t posted a 3% decline since November 2016. That’s its longest stretch ever without a 3% dip. Incredible!

While the financial media remain laser-focused on the U.S. averages, emerging markets are widening their performance gap.

The MSCI Emerging Market Index is positing an incredible run. It’s on its longest-ever streak without a 10% decline, Bloomberg notes. That’s helping power the iShares MSCI Emerging Markets ETF (NYSE:EEM) well ahead of the S&P 500 to start the year.

The iShares MSCI Emerging Markets ETF is higher by more than 9% to begin the year, compared to a 6% rise posted by the S&P 500.

We’re bound to see some volatility out of emerging markets sooner rather than later. But if we can withstand the pain, these stocks have a great shot at handing over impressive returns over the next several years as they play catch-up with the U.S. averages.