Diamonds are forever but higher for longer ‘by no means a given’

Did US Treasury Secretary Yellen just give the first indication that the Federal Reserve may need to revisit their current bullish trajectory on rates? Yesterday Yellen was quoted ‘Higher for Longer rates is by no means a given’ – could this (sigh… finally….) be the pivot?

So as currencies around the world continue to devalue against the USD, as the US government continues to spend like a drunken sailor, lifting treasury yields and seeing inflation move from the US to other countries including Australia, forcing the hand of other central banks to keep increasing rates….. is Yellen finally giving an indication that the USD rate increases cannot last forever? (or at least higher for longer?)

DXY 12 weeks running

The DXY is made up of a basket of currencies against the USD (interestingly enough the Aussie dollar is not included in it) and unlike hard assets, the USD cannot keep going up forever.  Since 1967 the DXY has only once before had a run of 12 weeks of growth (or green candles), this occurred in 2014.

Unlike the US, who has had a moderate uptick in inflation (currently at 3.7%) most other economies are seeing a greater resurgence in inflation growth, including Australia with a recent unexpected 5.2% (compared to 4.9% expected), this is due to both the recent oil price increases as well as the inflation from currency devaluation because of the USD strength.  So how much longer will the world tolerate this? How much longer till the USD reserve currency and its drunken sailor government breaks something?

Hard assets in all other currencies

Looking at hard assets such as gold, and despite the recent gold USD drop, gold in all other currencies continue a surging increase. Nowhere greater can this be seen than the XAUJPY (Gold/Yen), which has seen its currency devalue from 126 USDJPY to 150 USDJPY. Recently there’s been a suspected BOJ intervention pulling it back down below the key 150 level….

The increase in XAUJPY has seen an ounce of gold move from 22,000 yen to 28,000/oz this year.  A recent tweet from Graddhy shows this exponential trend in non USD gold.

Hard assets and inflation will continue to go up in non USD currencies.  At some point the USD strength and irresponsible deficits are going to break something…. So ask yourself this, did Yellen just blink?