Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

Euro-Dollar Parity: What Does It Mean For Gold?

By Frank HolmesMarket OverviewJul 18, 2022 12:38PM ET
www.investing.com/analysis/eurodollar-parity-what-does-it-mean-for-gold-200627264
Euro-Dollar Parity: What Does It Mean For Gold?
By Frank Holmes   |  Jul 18, 2022 12:38PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
 
EUR/USD
0.21%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
XAU/USD
+0.44%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
US500
+3.09%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BA
+2.03%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
WMT
-0.36%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
HD
+3.16%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

If you were considering taking the family on a European vacation, now may be a good time, as the U.S. dollar and euro just achieved parity for the first time in 20 years. But as someone who was recently in Europe, I urge travelers to be aware that prices have skyrocketed everywhere, not just in the U.S. A five-star hotel in France or Italy that might have cost $350 a night before the pandemic can now cost as much as $1,600.

Much is being made about the EUR/USD exchange rate, but the truth is that King Dollar has made epic gains on a number of world currencies this year as the U.S. has embarked on an aggressive monetary tightening cycle to control inflation. Below you can see how much G-10 currencies have fallen in 2022 compared to the greenback.

U.S. Dollar Performance Against Its Peers YTD
U.S. Dollar Performance Against Its Peers YTD

A stronger dollar is favorable not only for Americans traveling abroad but also companies that pay to import goods from other countries—think big-box retailers such as Walmart (NYSE:WMT), Target (NYSE:TGT), Home Depot (NYSE:HD), and Dollar Tree (NASDAQ:DLTR).

On the other hand, a soaring dollar can hurt U.S. exporters since it makes goods more expensive to foreign buyers, dampening demand. Between January and May of this year, the top U.S. exports by end-use included crude oil and petroleum products, mostly due to the massive increase in crude prices. Other top exports included pharmaceuticals, industrial machinery, semiconductors, automotive parts and accessories, fuel oil, automobiles, natural gas and plastic materials, according to Bureau of Economic Analysis (BEA) data.

Largest U.S. Exports
Largest U.S. Exports

Boeing Reports Best Month For Deliveries Since 2019

The single largest U.S. exporter in value terms is Boeing (NYSE:BA). The massive aerospace company, which recently moved its headquarters to Arlington, Virginia, faced a wave of order cancellations stemming from the tragic 2018/2019 crashes involving the 737 MAX, but orders look to be picking up again. As I shared with you last week, Boeing reported stellar delivery results for the second quarter, with 51 aircraft delivered in June alone. That’s the company’s best month since March 2019.

I will be curious to see if Boeing executives address the impact of the stronger dollar when the company reports second-quarter financial results later this month.

King Dollar Pushes Gold Deep Into Oversold Territory

Among the biggest victims of King Dollar’s strength is gold, which, like most commodities, is priced in the greenback internationally. The yellow metal has long been valued as a safe haven during times of economic uncertainty and high inflation, which we’re certainly facing today. June’s consumer price index (CPI) came in at a scorching annual rate of 9.1%, the highest in over 40 years, but if we use the inflation methodology from 1980, the figure is closer to 17% or more.

Annual Inflation Change
Annual Inflation Change

Despite this, gold has steadily fallen since its 2022 high of $2,070 per ounce, set in early March. As of today, gold is off close to 7% for the year, and last week it briefly traded below $1,700 for the first time since March 2021. Based on the 14-day relative strength index (RSI), the metal looks incredibly oversold at around 23, the lowest it’s been since August 2018.

In addition, gold has signaled a death cross, which occurs when the 50-day moving average dips below the 200-day moving average.

Gold Price/50, 200-Day Moving Averages
Gold Price/50, 200-Day Moving Averages

Some investors and traders see this move as a bearish sign. I see it as a buying opportunity. If you believe that the dollar is overextended relative to other currencies, and that a reversal could happen in the coming weeks and months, now may be a good time to accumulate, especially if you think we’re in the midst of a recession.

Deepest Yield Inversion Since 2000

I’ve shared with you a couple of times that we may very well be in a recession already, based on the Atlanta Federal Reserve’s GDPNow real-time forecast. The latest forecast, as of last Friday, is that the U.S. economy contracted 1.5% in the second quarter, following an annual decrease of 1.6% in the first quarter.

Even if that ends up not being the case, the bond market is telling us that a pullback may be imminent.

A yield inversion occurs when the shorter-term Treasury bond trades with a higher yield than the longer-term Treasury. Remember, bond yields go up when prices go down, so when yields invert, it suggests that investors find shorter government notes riskier to hold than longer-dated ones.

Inversions have been extraordinarily accurate at predicting recessions. Going back at least 40 years, every recession has been preceded by an inverted yield curve, using the two-year and 10-year Treasuries.

Not only is the yield curve inverted right now, but it’s inverted at the biggest point since the year 2000, soon before the dotcom bubble burst.

So what does this mean? Past performance is no guarantee of future results, but we could be looking at a pullback, if not this year then the next. More specifically, stocks and other risk assets may not have found a bottom yet. From its all-time high in early January, the S&P 500 has fallen 20%, but historically it’s dropped as much as 35% on average when a bear market coincides with a recession.

Do with that information as you wish, but I believe it’s wise and prudent to have exposure to gold at this time, between 5% and 10% of your portfolio.

Disclaimer: All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. By clicking the link(s) above, you will be directed to a third-party website(s). U.S. Global Investors does not endorse all information supplied by this/these website(s) and is not responsible for its/their content.

Holdings may change daily. Holdings are reported as of the most recent quarter-end. The following securities mentioned in the article were held by one or more accounts managed by U.S. Global Investors as of (06/30/22): The Boeing Co.

Euro-Dollar Parity: What Does It Mean For Gold?
 

Related Articles

Lance Roberts
One Monetary Policy Fits All By Lance Roberts - Nov 30, 2022 4

With an understanding of the dollar’s role as the world’s reserve currency, it’s time to discuss how the Federal Reserve’s monetary policy machinations influence the dollar and,...

Euro-Dollar Parity: What Does It Mean For Gold?

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (2)
Siddiq Rivera Sabir
Siddiq Rivera Sabir Jul 19, 2022 6:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Couldnt agree more!
Uzochukwu Anyalor
Uzochukwu Anyalor Jul 18, 2022 3:35PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thank you 💕
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email